Discussion paper

DP16823 Minimum Wages and Insurance within the Firm

Minimum wages alter the allocation of firm-idiosyncratic risk across workers. To establish this result, we focus on Italy, and leverage employer-employee data matched to firm balance sheets and hand-collected wage floors. We find a relatively larger pass-through of firm-specific labor-demand shocks into wages for the workers whose earnings are far from the floors, but who are employed by establishments intensive in minimum-wage workers. We study the welfare implications of this fact using an incomplete-market model. The asymmetric pass-through uncovers a novel channel which tilts the benefits of removing minimum wages toward high-paid employees at the expense of low-wage workers.


Adamopoulou, E, F Manaresi, O Rachedi and E Yurdagul (eds) (2021), “DP16823 Minimum Wages and Insurance within the Firm”, CEPR Press Discussion Paper No. 16823. https://cepr.org/publications/dp16823