Minimum wage and manufacturing labor share: Evidence from North Macedonia

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.