Nicholas Lawson, Claire Lelarge, and Grigorios Spanos (2024): "The Minimum Wage in Firms' Organizations: Productivity Implications," CEPR Discussion Paper No. 18425.

In our paper, we study the effect of the minimum wage on firms' incentives to adopt different organizational structures and technologies. We start with an empirical analysis of French data from 2003 to 2006, a unique empirical setting in which different minimum wages coexisted for different firms due to the way that a reduction in the workweek from 39 to 35 hours was phased in between 1998 and 2002. We show that higher minimum wages are associated with smaller firms with fewer layers in their workforce's hierarchy, but also higher probabilities of training and higher productivity per worker.

We then build a theoretical model that can explain these results, calibrated to our French data. We show that the model is able to replicate our main empirical findings: a higher minimum wage causes firms to increase training, leading to more skilled workers who can be relied upon to do more themselves; as a result, workers require less supervision (implying fewer managers and fewer layers in the hierarchy), and have higher productivity. These adjustments significantly reduce the aggregate loss in output caused by the minimum wage.

Finally, we consider how technological change could affect the minimum wage's impact. Our model predicts that the impacts of the minimum wage - including negative effects on overall output - will be stronger in the presence of more efficient communication technologies, because such technologies encourage firms to adopt the complex hierarchies that a minimum wage makes unprofitable. Meanwhile, the effect of the minimum wage would be weaker if problem-solving technologies (potentially including AI) improve, because such technologies complement the minimum wage's tendency to require workers to solve more problems on their own.