Minimum Wage and Worker Productivity: Evidence from a large US retailer

We study the effect of increasing the statutory minimum wage on individual worker productivity. Within a workforce of base+commission salespeople from a large US retailer, and using a border-discontinuity research design, we document that a \$1 (1.5 standard deviations) increase in the minimum wage increases individual productivity (sales per hour) by 4.5\%. With the help of a model, and of novel satellite imagery, we seek evidence in favor of two distinct channels through which this productivity gain could arise: a demand increase, and an incentive effect due to the increase in compensation. We find evidence only for the second, that is, the compensation channel: first, productivity gains are concentrated among low-productivity workers; second, productivity gains arise mostly during periods of high-unemployment, which when read through the lens of our model suggests an efficiency-wage story. We then document that the productivity gains of low-productive workers are sufficient to offset the higher worker pay, pointing to endogenous worker productivity as an explanation for why increasing the statutory minimum wage has no adverse employment effect.