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Minimum Wage and Manufacturing Labor Share: Evidence From North Macedonia

Year: 2024

Type: article

Abstract: The objective of the paper is to understand whether the minimum wage plays a role in the labor share in the manufacturing sector in North Macedonia. We decompose the movements of the labor share into those along a share-capital curve, shifts of this locus, and deviations from it. We use the capital-output ratio, total factor productivity and input prices to capture these factors, while the minimum wage is introduced as an element that shifts the curve. We estimate a panel of 20 manufacturing branches over the period 2012-2019 with FE, IV and system-GMM estimators. We find that the role of the minimum wage for the labor share is industry-specific. In labor-intensive and low-paid industries, it increases workers’ labor share, which corresponds to a complementarity between capital and labor. For capital-intensive branches, it reduces labor share, likely through the job loss channel and along a substitutability between labor and capital. This applies to both branches where foreign investment and heavy industry are integrated.

Source: Ekonomska misao i praksa

DOI: 10.17818/emip/2024/2.2

Authors: Marjan Petreski, Jaakko Pehkonen

Institutions: University American College Skopje, University of Jyväskylä

Language: English

Topic: Labor market dynamics and wage inequality

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: diamond

Funder: Jyväskylän Yliopisto