The evidence reviewing the effects of minimum wages on non-wage outcomes in LMICs also highlights the effects on outcomes not studied in the context of developed countries, like entrepreneurship and migration (and their macroeconomic consequences). Kong et al. (2021) find a negative and statistically significant effect on entrepreneurship in China, particularly in labor-intensive industries and in areas with higher labor costs or with low access to finance. Sy and Hosoe (2022) use a structural model to argue that raising the minimum wage in the Philippines increases emigration and leads to an increase in remittances. Remittances increase welfare but in turn have macroeconomic consequences such as currency appreciation, causing a decrease in domestic production in labor-intensive and export-oriented sectors and an erosion of the tax base (since remittances are not taxed).

# **4.2.2 Minimum Wage: Impact on Productivity**

Most existing evidence suggests that productivity increases following a minimum wage hike. First, there is evidence that the smallest, less productive firms exit the market; thus leading to aggregate productivity increases (Dustmann et al., 2022) by a pure composition effect. This has important geographic implications since average establishment quality increases in more affected areas in the years following the introduction of the minimum wage. The size of firms increases as well (with implications for market concentration, now higher). Aaronson et al. (2018)’s results imply increases both in aggregate and in labor productivity following the exit of labor-intensive firms and entry of capital-intensive ones. For LMICs, Belman and Wolfson (2016) show mixed findings on the effect of minimum wage on firms’ exit. There is suggestive evidence though, that the rise in the minimum wage increases the exit of firms with low labor productivity, leading to improved productivity of surviving firms as an adjustment to the higher minimum wage.

Consistent with these results, hiring practices of different firms may be effected by the minimum wage. Engbom and Moser (2022) find that with the squeeze of profit margins following Brazil’s minimum wage increase, low-productive firms cut vacancy posting while highly productive firms increase vacancy posting (since it is easier to hire workers), increasing aggregate productivity by 3% (and output by 1%).

Second, establishments increase their capital expenditures and capital stock in response to minimum wage increases in the medium run, according to some evidence, suggesting that capital-labor substitution plays a crucial role (Harasztosi and Lindner, 2019). A higher capital stock is associated with productivity increases in the medium and long run. In a study for Korea, Seok and You (2022) argue that the rise in capital investment, is facilitated by the long-run increase in labor productivity for employed workers which was triggered by the minimum wage.

Third, when it comes to human capital accumulation, the evidence is mixed. Bellmann et al. (2017) do not find a reduction in the training incidence but a slight reduction in the intensity of training at treated establishments, driven by employer-financed training. With more important aggregate implications, B ́ar ́any (2016) shows in a general equilibrium model that the minimum wage alters the incentives to attain post-compulsory education, since it directly affects the college premium, i.e. the difference in wage between the college and non-college educated. A decrease in the real minimum 48