Since late 2014, Portuguese Governments adopted
ambitious minimum wage policies. Using linked employer-employee data,
we provide an econometric evaluation of the impact of those policies.
Our estimates suggest that minimum wage increases reduced employment
growth and profitability, in particular for financially distressed
firms. We also conclude that minimum wage increases had a positive
impact on firms’ exit, again amplified for financially distressed firms.
According to these results, minimum wage policies may have had a supply
side effect by accelerating the exit of low profitability and low
productivity firms and, thus, contributing to improve aggregate
productivity through a cleansing effect.