Minimum wage and manufacturing labor share: Evidence from North Macedonia

TL;DR

This study investigates how minimum wage policies influence the labor share in North Macedonia's manufacturing sector, revealing industry-specific effects that depend on labor intensity and capital composition.

Contribution

It provides empirical evidence on the differential impact of minimum wage on labor share across manufacturing industries using advanced econometric methods.

Findings

Minimum wage increases labor share in labor-intensive industries.

In capital-intensive industries, minimum wage reduces labor share.

Effects vary by industry, influenced by capital-labor relationships.

Abstract

The objective of the paper is to understand if the minimum wage plays a role for the labor share of manufacturing workers in North Macedonia. We decompose labor share movements on those along a share-capital curve, shifts of this locus, and deviations from it. We use the capital-output ratio, total factor productivity and prices of inputs to capture these factors, while the minimum wage is introduced as an element that moves the curve off. We estimate a panel of 20 manufacturing branches over the 2012-2019 period with FE, IV and system-GMM estimators. We find that the role of the minimum wage for the labor share is industry-specific. For industrial branches which are labor-intensive and low-pay, it increases workers' labor share, along 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 nested.