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Working Paper
Minimum Wage, Business Dynamism, and the Life Cycle of Firms
This paper studies the effects of the minimum wage on the life cycle of firms. We start by building a tractable model where heterogeneous firms have labor market power, invest in innovation, and choose formal or informal sectors. The model predicts that a minimum wage hike not only shrinks the young and lower-productivity firms but also decreases the incentives to innovate, resulting in slower life-cycle growth. We show that these predictions hold in Brazilian administrative and census data, leveraging the variation in exposure to the minimum wage between 1999 and 2010. An increase in the ...