Minimum Wage and Individual Worker, Productivity: Evidence from a Large US Retailer
Minimum Wage and Individual Worker
Productivity: Evidence from a Large US Retailer (joint with Erika Derranno and Nicola Persico)
We study how individual worker productivity responds to the minimum wage. Our workers are employed by a large US retailer, work in different store locations, and are paid based on performance. By means of a border-discontinuity analysis we document that workers whose average pay is very close to minimum wage become more productive, and they are terminated less often after a minimum wage increase. Workers whose average wage exceeds minimum wage also become more productive and are terminated less, but this effect is more muted. We interpret these findings using a new model where incentives to exert effort come from two channels: pay for performance (where the minimum wage is expected to de-motivate effort provision), and efficiency wages (where the minimum wage is expected to motivate it). A pure pay-for-performance model is rejected in favor of a hybrid model where the efficiency wage channel predominantly shapes the worker's productivity response.