The Payoffs of Higher Pay: Labor Supply and Productivity Responses to a Voluntary Firm Minimum Wage

What are the returns to firms of paying more? We study a Fortune 500 firm's voluntary firm-wide $15/hour minimum wage, which affected some warehouses more than others. Using a continuous difference-indifferences design, we find that a $1/hour pay increase (5.5 percent) halves worker departures, reduces absenteeism by 18.6 percent, and increases productivity (boxes moved per hour) by 5.7 percent.

These productivity gains fully defrayed increased labor costs, offsetting the firm's incentive to mark down wages. We develop a simple model that connects efficiency-wage incentives and monopsony power, showing how these forces can counterbalance each other to keep wages closer to workers' marginal revenues.