Hostname: page-component-586b7cd67f-rcrh6 Total loading time: 0 Render date: 2024-11-22T05:56:01.313Z Has data issue: false hasContentIssue false
  • English
  • Français

Minimum Wage Hikes and Technology Adoption: Evidence from U.S. Establishments

Published online by Cambridge University Press:  23 May 2023

Xin Dai  and
Yue Qiu Open the ORCID record for Yue Qiu [Opens in a new window]
Xin Dai
Affiliation:
Drexel University LeBow College of Business [email protected]
Yue Qiu*
Affiliation:
Temple University Fox School of Business
*
[email protected] (corresponding author)
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

This article studies the effects of state minimum wage increase on information technology (IT) adoption at the establishment level in the United States. Our results show that treatment establishments on average allocate between $10,328 and $66,808 more per year to their IT budgets during the first 3 years after experiencing significant state minimum wage increases. Additional evidence shows that state minimum wage increases on average lead to an economically small decrease in employment. The estimated employment effect is larger for establishments that have more incentives to automate labor. Our results suggest that establishments adopt technology to countervail increased labor costs.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 59 , Issue 4 , June 2024 , pp. 1620 - 1658
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2023. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

For helpful comments and discussions, we thank Ran Duchin (the editor), Anastassia Fedyk (discussant), Jason Kotter (the referee), Wenting Ma, Catherine Maclean, Katie Moon, Bryan Seegmiller (discussant), Aaron Sojourner, Weilong Zhang, and seminar and conference participants in the 2020 Philly Five Conference, 2021 FIRS, 2021 SOLE, 2022 MFA, IAB-LISER Seminar Series on Minimum Wages and Low Wage Policies, and Temple University. We alone are responsible for any errors.

References

Aaronson, D., and Phelan, B. J.. “Wage Shocks and the Technological Substitution of Low-Wage Jobs.” Economic Journal, 129 (2019), 1–34.10.1111/ecoj.12529CrossRefGoogle Scholar
Aaronson, D., and Phelan, B. J.. “The Evolution of Technological Substitution in Low-Wage Labor Markets.” Review of Economics and Statistics, forthcoming (2023).10.1162/rest_a_01222CrossRefGoogle Scholar
Acemoglu, D. “When Does Labor Scarcity Encourage Innovation?” Journal of Political Economy, 118 (2010), 1037–1078.10.1086/658160CrossRefGoogle Scholar
Acemoglu, D.; Anderson, G.; Beede, D.; Buffington, C.; Childress, E.; Dinlersoz, E.; Foster, L.; Goldschlag, N.; Haltiwanger, J.; Kroff, Z.; Restrepo, P.; and Zolas, N.. “Automation and the Workforce: A Firm-Level View from the 2019 Annual Business Survey.” Working Paper, MIT and NBER (2022a).10.3386/w30659CrossRefGoogle Scholar
Acemoglu, D., and Autor, D. H.. Skills, Tasks and Technologies: Implications for Employment and Earnings, Ashenfelter, O., and Card, D. E., eds. Amsterdam, Netherlands: Elsevier (2011).Google Scholar
Acemoglu, D.; Autor, D.; Hazell, J.; and Restrepo, P.. “Artificial Intelligence and Jobs: Evidence from Online Vacancies.” Journal of Labor Economics, 40 (2022b), S293–S340.10.1086/718327CrossRefGoogle Scholar
Acemoglu, D.; Lelarge, C.; and Restrepo, P.. “Competing with Robots: Firm-Level Evidence from France.” AEA Papers and Proceedings, 110 (2020), 383–388.10.1257/pandp.20201003CrossRefGoogle Scholar
Acemoglu, D., and Restrepo, P.. “Automation and New Tasks: How Technology Displaces and Reinstates Labor.” Journal of Economic Perspectives, 33 (2019), 3–30.10.1257/jep.33.2.3CrossRefGoogle Scholar
Aghion, P.; Antonin, C.; Bunel, S.; and Jaravel, X.. “What Are the Labor and Product Market Effects of Automation? New Evidence from France.” Working Paper, Collège de France and London School of Economics (2022).Google Scholar
Allegretto, S.; Dube, A.; Reich, M.; and Zipperer, B.. “Credible Research Designs for Minimum Wage Studies: A Response to Neumark, Salas, and Wascher.” ILR Review, 70 (2017), 559–592.10.1177/0019793917692788CrossRefGoogle Scholar
Ashenfelter, O., and Jurajda, V. “Minimum Wages, Wages, and Price Pass-Through: The Case of McDonald’s Restaurants.” Journal of Labor Economics, 40 (2022), S179–S201.10.1086/718190CrossRefGoogle Scholar
Autor, D. H., and Dorn, D.. “The Growth of Low-Skill Service Jobs and the Polarization of the US Labor Market.” American Economic Review, 103 (2013), 1553–1597.10.1257/aer.103.5.1553CrossRefGoogle Scholar
Autor, D. H.; Levy, F.; and Murnane, R. J.. “The Skill Content of Recent Technological Change: An Empirical Exploration.” Quarterly Journal of Economics, 118 (2003), 1279–1333.10.1162/003355303322552801CrossRefGoogle Scholar
Bai, J. J.; Fairhurst, D.; and Serfling, M.. “Employment Protection, Investment, and Firm Growth.” Review of Financial Studies, 33 (2020), 644–688.10.1093/rfs/hhz066CrossRefGoogle Scholar
Benmelech, E., and Zator, M.. “Robots and Firm Investment.” Working Paper, Northwestern University and NBER (2021).10.3386/w29676CrossRefGoogle Scholar
Bessen, J.; Goos, M.; Salomons, A.; and van den Berge, W.. “Firm-Level Automation: Evidence from the Netherland.” AEA Papers and Proceedings, 110 (2020), 380–393.10.1257/pandp.20201004CrossRefGoogle Scholar
Bonfiglioli, A.; Crinò, R.; Fadinger, H.; and Gancia, G.. “Robot Imports and Firm-Level Outcomes.” Working Paper, Queen Mary University of London and Centre for Economic Policy Research (2020).10.2139/ssrn.3744604CrossRefGoogle Scholar
Brynjolfsson, E., and Hitt, L. M.. “Computing Productivity: Firm-Level Evidence.” Review of Economics and Statistics, 85 (2003), 793–808.10.1162/003465303772815736CrossRefGoogle Scholar
Cengiz, D.; Dube, A.; Lindner, A.; and Zipperer, B.. “The Effect of Minimum Wages on Low-Wage Jobs.” Quarterly Journal of Economics, 134 (2019), 1405–1454.10.1093/qje/qjz014CrossRefGoogle Scholar
Chen, Y. “What Do Establishments Do When Wages Increase? Evidence from Minimum Wages in the United States.” Working Paper, Upjohn Institute for Employment Research (2019).Google Scholar
Cho, D. “Downward Wage Rigidity, Corporate Investment, and Firm Value.” Technical Report, SSRN (2021).Google Scholar
Clemens, M. A.; Lewis, E. G.; and Postel, H. M.. “Immigration Restrictions as Active Labor Market Policy: Evidence from the Mexican Bracero Exclusion.” American Economic Review, 108 (2018), 1468–1487.10.1257/aer.20170765CrossRefGoogle ScholarPubMed
Clemens, J., and Strain, M. R.. “Estimating the Employment Effects of Recent Minimum Wage Changes: Early Evidence, an Interpretative Framework, and a Pre-Commitment to Future Analysis.” Working Paper, University of California, San Diego and NBER (2017).Google Scholar
Clemens, J., and Wither, M.. “The Minimum Wage and the Great Recession: Evidence of Effects on the Employment and Income Trajectories of Low-Skilled Workers.” Journal of Public Economics, 170 (2019), 53–67.10.1016/j.jpubeco.2019.01.004CrossRefGoogle Scholar
Dixon, J.; Hong, B.; and Wu, L.. “The Robot Revolution: Managerial and Employment Consequences for Firms.” Management Science, 67 (2021), 5586–5605.10.1287/mnsc.2020.3812CrossRefGoogle Scholar
Domini, G.; Grazzi, M.; Moschella, D.; and Treibich, T.. “Threats and Opportunities in the Digital Era: Automation Spikes and Employment Dynamics.” Research Policy, 50 (2021), 104,137.10.1016/j.respol.2020.104137CrossRefGoogle Scholar
Dube, A.; Lester, T. W.; and Reich, M.. “Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties.” Review of Economics and Statistics, 92 (2010), 945–964.10.1162/REST_a_00039CrossRefGoogle Scholar
Eden, M., and Gaggl, P.. “Capital Composition and the Declining Labor Share.” Working Paper, Brandeis University (2019).10.2139/ssrn.3507267CrossRefGoogle Scholar
Flood, S.; King, M.; Rodgers, R.; Ruggles, S.; and Warren, J. R.. Integrated Public Use Microdata Series, Current Population Survey: Version 6.0 [Machine-Readable Database]. Minneapolis, MN: University of Minnesota (2018).Google Scholar
Forman, C.; Goldfarb, A.; and Greenstein, S.. “The Internet and Local Wages: A Puzzle.” American Economic Review, 102 (2012), 556–575.10.1257/aer.102.1.556CrossRefGoogle Scholar
Geng, H.; Huang, Y.; Lin, C.; and Liu, S.. “Minimum Wage and Corporate Investment: Evidence from Manufacturing Firms in China.” Journal of Financial and Quantitative Analysis, 57 (2022), 94–126.10.1017/S0022109021000053CrossRefGoogle Scholar
Giroud, X., and Mueller, H. M.. “Capital and Labor Reallocation within Firms.” Journal of Finance, 70 (2015), 1767–1804.10.1111/jofi.12254CrossRefGoogle Scholar
Giroud, X., and Mueller, H. M.. “Firms’ Internal Networks and Local Economic Shocks.” American Economic Review, 109 (2019), 3617–3649.10.1257/aer.20170346CrossRefGoogle Scholar
Gustafson, M., and Kotter, J. D.. “Higher Minimum Wages Reduce Capital Expenditures.” Management Science, 69 (2022), 2933–2953.10.1287/mnsc.2022.4430CrossRefGoogle Scholar
Habakkuk, H. J. American and British Technology in the Nineteenth Century. London, UK: Cambridge University Press (1962).Google Scholar
Haltiwanger, J.; Jarmin, R. S.; and Miranda, J.. “Who Creates Jobs? Small vs. Large vs. Young.” Review of Economics and Statistics, 95 (2013), 347–361.10.1162/REST_a_00288CrossRefGoogle Scholar
Harasztosi, P., and Lindner, A.. “Who Pays for the Minimum Wage?” American Economic Review, 109 (2019), 2693–2727.10.1257/aer.20171445CrossRefGoogle Scholar
Hau, H.; Huang, Y.; and Wang, G.. “Firm Response to Competitive Shocks: Evidence from China’s Minimum Wage Policy.” Review of Economic Studies, 87 (2020), 2639–2671.10.1093/restud/rdz058CrossRefGoogle Scholar
Humlum, A. “Robot Adoption and Labor Market Dynamics.” Working Paper, University of Chicago (2021).Google Scholar
Koch, M.; Manuylov, I.; and Smolka, M.. “Robots and Firms.” Economic Journal, 131 (2021), 2553–2584.10.1093/ej/ueab009CrossRefGoogle Scholar
Lewis, E. “Immigration, Skill Mix, and Capital-Skill Complementarity.” Quarterly Journal of Economics, 126 (2011), 1029–1069.10.1093/qje/qjr011CrossRefGoogle Scholar
Lordan, G., and Neumark, D.. “People Versus Machines: The Impact of Minimum Wages on Automatable Jobs.” Labour Economics, 52 (2018), 40–53.10.1016/j.labeco.2018.03.006CrossRefGoogle Scholar
Ouimet, P.; Simintzi, E.; and Ye, K.. “The Impact of the Opioid Crisis on Firm Value and Investment.” Working Paper, University of North Carolina at Chapel Hill (2021).Google Scholar
Silva, R. “Internal Labor Markets, Wage Convergence and Investment.” Journal of Financial and Quantitative Analysis, 56 (2021), 1192–1227.10.1017/S0022109020000277CrossRefGoogle Scholar
Stigler, G. J. “The Economics of Minimum Wage Legislation.” American Economic Review, 36 (1946), 358–365.Google Scholar
Sun, L., and Abraham, S.. “Estimating Dynamic Treatment Effects in Event Studies with Heterogeneous Treatment Effects.” Journal of Econometrics, 225 (2021), 175–199.10.1016/j.jeconom.2020.09.006CrossRefGoogle Scholar