Firms reduce investment when facing downward wage rigidity (DWR), the inability or unwillingness to adjust wages downward. I construct DWR measures and exploit staggered state-level changes in minimum wage laws as an exogenous variation in DWR to document this fact. Following a minimum wage increase, firms reduce their investment rate by 1.17 percentage points. Surprisingly, this labor market friction enhances firm value and production efficiency when firms are subject to other frictions causing overinvestment, consistent with the theory of second best.
Download count: 0
- Partial requirement for: Ph.D., Arizona State University, 2017Note typethesis
- Includes bibliographial references (pages 52-56)Note typebibliography
- Field of study: Business administration