Current Events > study: After min wage increase, workers are more productive

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IX. Conclusion
We assess the effect of the minimum wage on worker productivity among more than 40,000 salespeople whose pay is partly based on performance and who are employed by a large US retailer that operates more than 2,000 stores.

Using a border-discontinuity research design, we document that workers become more productive after a minimum wage increase, and this effect is stronger among workers whose pay is more often supported by the minimum wage. However, these effects reverse in sign when workers are monitored less intensely. We organize these findings using a theoretical model that features two sources of worker incentives: an efficiency wage channel and a pay-for-performance channel. When viewed through the lens of this model, our empirical results indicate that the efficiency wage channel is responsible for the productivity gain. It is interesting that efficiency wages play a major role despite the fact that pay is allowed to depend on performance (though not on effort).

At the store level, turnover decreases, employment does not change, output increases, and average profits across all stores decrease following a minimum wage increase. This last result indicates that the endogenous increase in output is not large enough to offset the increase in wage costs. Finally, a calibration exercise suggests that the welfare of employed and unemployed workers increases with the minimum wage.

This study is limited to a single large firm; therefore, it is appropriate to comment on the extent to which the analysis and results might generalize. First, in our nationwide firm, product prices and the wage schedule do not respond to local minimum wage changes. Small employers may more freely adjust their prices and/or wages, potentially making them somewhat more resilient to minimum wage increases. Second, the store-level response to a minimum wage increase depends on its type compositionfor example, how many workers are at minimum wage. While the typical firms type composition need not be the same as our stores, it is somewhat reassuring that our store-level estimates on labor flows, employment, and profits qualitatively align with aggregate estimates from the empirical labor literature, as detailed in the introduction. Finally, the theory treats a workers productivity as independent from her coworkers. While this assumption has some empirical support in our case, as detailed in section VII.A, productivity spillovers may exist in other firms.
This paper has shed light on the endogenous effort response of low-paid workers to the minimum wage. In addition, it has shown that the efficiency wage model is a helpful framework for interpreting the workers response. Both contributions may be potentially important as the debate on the minimum wage continues to unfold.

Literally no one who has ever worked a low-wage job is surprised by this.

Literally no one who has ever worked a low-wage job is surprised by this.

It's a temporary buff. The motivation wears off after a couple of months.

However, these effects reverse in sign when workers are monitored less intensely.

when you have (still) shitty pay along with a shitty work culture, morale isnt going to improve long term.

However, these effects reverse in sign when workers are monitored less intensely.