The Minimum Wage and Firm Networks: Evidence from South Africa

Brandon Tan
May 2020

There is a large literature on the minimum wage focused on directly exposed firms and geographies. This paper will provide new evidence that the minimum wage has signifi cant spillover effects on firms exposed to the minimum wage indirectly via firm supply chains. Using administrative firm-level data from South Africa, I will study the impact of the 50% agricultural minimum wage hike in 2013 on the outcomes of firms upstream and downstream from the agriculture sector with an event study design. In preliminary results: The minimum wage increased labor costs and revenue (prices) in the agriculture sector, with insignificant disemployment effects. I find that industries with greater upstream exposure to the agriculture sector experienced greater decreases in assets, sales and employment for its medium to large firms following the minimum wage increase, driven by the exit of unprofitable firms. I find that industries with greater downstream exposure to the agriculture sector experienced greater decreases in sales, employment and profits for its small firms, and null effects on exit. These results suggest that the minimum wage has negative second order effects through firm supply chain networks which must be considered by policymakers.

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