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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

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.

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    Date Created
    • 2017
    Resource Type
  • Text
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    • Partial requirement for: Ph.D., Arizona State University, 2017
      Note type
      thesis
    • Includes bibliographial references (pages 52-56)
      Note type
      bibliography
    • Field of study: Business administration

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    by DuckKi Cho

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