Research Activities
Research Projects 2026
Production approach to wage markdown: An application to minimum wage policy in a developing country
Outline
We use the production approach to markups and its extension, its approach to wage markdowns, and estimate the labour market power at the firm level. We use both parametric and nonparametric approaches to production function estimation (Ravaro, 2023; Gandhi, Navarro, and Rivers, 2020). We apply them to the corporate tax returns data at South African Revenue Services (SARS) to examine the oligopsoby (labour market power) hypothesis of minimum wages.
Minimum wage is a popular policy to reduce poverty and inequality, yet with a concern that low wage workers may lose jobs. The proposed research examines if oligopsony reduces the disemployment impacts of minimum wages, just as the oligopsony theory predicts. What distinguishes our research is the use of the production approach to estimate wage markdowns, i.e., the ratio of: (marginal value product of labour)/(wage), as a measure of labour market power. This addresses the limitations of Herfindahl-Hirshman index (HHI) of employment shares used in previous studies: (1) HHI is an outcome of market power that can be influenced by confounders of disemployment impacts of minimum wage, (2) HHI is sensitive to how one sets the local labour market boundaries, (3) HHI is defined at the market level that each firm's labour market power does not map directly and that it requires certain conduct assumptions. The production approach requires only output elasticities and cost shares of labour and material inputs of each firm, which can be applied to corporate tax returns data of South African Revenue Services (SARS). The proposed research will show:
- A. Distribution of labour market power across geography and industry over time
- B. If oligopsony reduces the disemployment impacts of minimum wages
A. in developing countries is limited and the use of wage markdown in B. is novel. Findings from B. will inform more effective minimum wage policies and A. will contribute to international research on labour market power.
Period
April 2026 - March 2029
Members
| Role | Member |
|---|---|
| [ Organizer ] | Ito, Seiro |
| [ Co-researcher ] | Dieter Peter von Fintel(Stellenbosch University professor) |
*Affiliations are as of April 2026.
Expected Outcome
- Peer-Reviewed Journal