Séminaire organisé par le GPR HOPE  et le programme 3 – BSE

Minimum Wage Shocks, Firms and Employment: Evidence from Africa

Although African countries are increasingly using minimum wage policies to fight poverty, research on minimum wages in Africa remains scarce. This paper addresses this gap by examining the economic impact of minimum wage shocks on firms across the African continent, using firm-level data from the World Bank Enterprise Surveys. We discuss different minimum wage systems and document a simple fact: all but 4 African countries have some form of minimum wage. We document the evolution of minimum wages and identify different minimum wage shocks, defined as a +30% increase in the minimum wage in constant prices. Over the period 2002-202, we identify 14 shocks in 12 countries. We then propose a difference-in-differences approach to identify the causal effects of minimum wage shocks on labour costs per worker, employment, sales and labour productivity. To deal with the potential endogeneity of minimum wage shocks, we also propose an IV strategy using the intensity of social protests as an instrument. We find that minimum wage shocks have a significant impact on labour costs per worker, indicating at least some enforcement of minimum wage regulations. However, we do not find robust effects on employment. Such an increase in labour costs appears to be offset to some extent by an increase in sales or labour productivity. The effects are much stronger for panel firms that are positively selected, suggesting a potential cleansing effect of minimum wages. We then discuss the potential mechanisms at work by looking at the heterogeneous effects by firm size and sector.

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