As part of the series of the "Finance Research Seminar", VGSF welcomes Nathalie Moyen from Leeds School of Business to present her research paper.
Upstream Volatility Spillovers from Geographically Concentrated Production
As US income inequality increased, labor-intensive production became more concentrated into lower-wage regions. While economically profitable, the higher concentration can lead to more volatile firm outcomes. Using federally-mandated minimum wage increases as a quasi-natural experiment, we show that the increase in the federal minimum wage in states where the state minimum is bound to the federal mandate tempers the concentration. As a result, the profit volatilities of downstream firms in treated states decrease. We find that a one dollar increase in the federal minimum wage leads to a 3.63 percentage point decrease in production concentration in bound states, which is then associated with a 24.4% decrease in profit volatility of customer firms in those states. Our findings highlight the volatility spillover cost born by customer firms dependent on geographically concentrated production.