Do Minimum Wage Increases Matter to Profitability of Private Firm? The Case of Vietnam

Nguyen, Cuong (2009): Do Minimum Wage Increases Matter to Profitability of Private Firm? The Case of Vietnam.

Abstract

This paper measures the impact of a minimum wage increase on profitability of private firms in Vietnam using a difference-in-differences with propensity score matching method. Data used for this analysis are from Vietnam Enterprise Censuses in 2005 and 2006. It is found that the impact estimate of the minimum wage increase in 2005 from 290 to 350 thousand VND on firms’ profit margins is very small and negative, and not statistically significant.

• Item Type: MPRA Paper
• Language: English
• Keywords: Minimum wage, firm profitability, difference-in-differences, propensity score matching, Vietnam.
• Subjects: J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M2 - Business Economics; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M2 - Business Economics > M21 - Business Economics

References

Abadie, A. and G. W. Imbens (2006), “On the Failure of the Bootstrap for Matching Estimators”, NBER Technical Working Paper No. 325.

Abowd, John M., Francis Kramarz, and David N. Margolis (1999), “Minimum Wages and Employment in France and the United States.” Working Paper 6996. National Bureau of Economic Research.

Brown, Charles (1999), “Minimum Wages, Employment and the Distribution of Income,” In Handbook of Labor Economics, Vol. 3. Edited by O. Ashenfelter and D. Card. Elsevier Science, 1999, pp. 2101-2163.

Campolieti, Michele, Tony Fang, and Morley Gunderson (2005), “Minimum Wage Impacts on Youth Employment Transitions, 1993-1999.” Canadian Journal of Economics Vol. 38, No. 1: 81-104.

Card, D. E., and Krueger A. (1995), Myth and Measurement: The New Economics of the Minimum Wage. Princeton: Princeton University Press.

Card, David, and Alan B. Krueger (1994), “Minimum Wages and Employment: A Case Study of the Fast- Food Industry in New Jersey and Pennsylvania.” American Economic Review. Vol. 84, No. 5: 772-93.

Card, David, and Alan B. Krueger (2000), “Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania: Reply.” American Economic Review. Vol. 90, No. 5: 1397-1420.

Dehejia R. H. and S. Wahba (1998), “Propensity Score Matching Methods for Non-Experimental Causal Studies”, NBER Working Paper 6829, Cambridge, Mass.

Dickens, Richard, Stephen Machin, and Alan Manning (1999), “The Effects of Minimum Wages on Employment: Theory and Evidence from Britain.” Journal of Labor Economics 17(1): 1–22.

Dowrick, Steve, and John Quiggin (2003), “A Survey of the Literature on Minimum Wage”, Unpublished Manuscript, Australian National University.

Draca, M., Machin S., and Reenen J. V. (2008), “Minimum Wages and Firm Profitability”, Working Paper 13996, NBER Working Paper Series, National Bureau of Economic Research, Cambridge, US.

Duy Tuan (2009), “Bộ trưởng LĐTB&XH: Nghe thì cứ tưởng là tăng lương...", VTC News, ngày 8/4/2009.

Freeman, R. B. (1994), “Minimum Wages – Again!”, International Journal of Manpower, 15(2): 8-25.

Frye, J., and R. J. Gordon (1981), "Government Intervention in the Inflation Process: The Econometrics of "Self-Inflicted Wounds", American Economic Review 71: 288-294.

Gindling, Thomas, and Katherine Terrell (2004), “The Effects of Multiple Minimum Wages Throughout the Labor Market.” Discussion Paper No. 1159, IZA, May.

Gunderson, Morley (2005), “Minimum Wages In Canada: Theory, Evidence And Policy”, the Federal Labour Standards Review Commission, Minimum Wage No. 512.

Hamermesh, D. (1986), “The demand for labor in the long run”, 429–71 in Ashenfelter, O. and Layard, R. (ed.), Handbook of Labor Economics, Volume 1, North Holland, Amsterdam.

Harrison, Ann, and Jason Scorse (2005), “Moving Up or Moving Out? Anti-Sweatshop Activists and Labor Market Outcomes.” NBER Working paper No. 10492.

Heckman, J., R. Lalonde and J. Smith (1999), "The Economics and Econometrics of Active Labor Market Programs", Handbook of Labor Economics 3, Ashenfelter, A. and D. Card, eds., Amsterdam: Elsevier Science.

Katz, L. F., and A. B. Krueger (1992), "The Effect of the Minimum Wage on the Fast-Food Industry," Industrial and Labor Relations Review 46: 6-21.

Macdonald, J., and Aaronson D. (2000), "How Do Retail Prices React to Minimum Wage Increases?," Working Paper 2000-20, Federal Reserve Bank of Chicago.

Mangan, John, and John Johnston (1999), “Minimum Wages, Training Wages and Youth Employment.” International Journal of Social Economics Vol. 26, No. 1: 415-429.

Montenegro, Claudio E., and Carmen Pagés (2004), “Who Benefits from Labor Market Regulations? Chile, 1960-1998. In James Heckman and Carmen Pagés, eds., Law and Employment: Lessons from Latin America and the Caribbean, pp. 401-34. Chicago: University of Chicago Press.

Neumark, David, and William L. Wascher (2003), “Minimum Wages and Skill Acquisition: Another Look at Schooling Effects.” Economics of Education Review Vol. 22, No. 1: 1-10.

Neumark, David, and William Wascher (2002), “State-Level Estimates of Minimum Wage Effects: New Evidence and Interpretations from Disequilibrium Models.” Journal of Human Resources. Vol. 37, No. 1: 35-62.

Rama, Martin (2001), “The Consequences of Doubling the Minimum Wage: The Case of Indonesia.” Industrial and Labor Relations Review, Vol. 54, No. 4: 864-81.

Ravallion M. (2001), “The Mystery of the Vanishing Benefits: An Introduction to Impact Evaluation”, The World Bank Economic Review, 15(1), 115-140.

Rosenbaum, P. and R. Rubin (1983), “The Central Role of the Propensity Score in Observational Studies for Causal Effects”, Biometrika, 70(1), 41-55.

Sellekaerts, B. (1981), "Impact of Minimum Wage Legislation on Wage and Price Inflation", Report of the Minimum Wage Paper Commission 6: 1-17.

Singell, Larry D., and James R. Terborg (2006), “Employment Effects of Two Northwest Minimum Wage Initiatives: Eating and Drinking and Hotel and Lodging.” Unpublished Manuscript, University of Oregon.

Smith, J. and P. Todd. (2005), “Does Matching Overcome LaLonde’s Critique of Nonexperimental Estimators?”, Journal of Econometrics, 125(1–2), 305–353.