How does firm value change in response to a minimum wage hike? This paper exploits the announcement of a big change in the UK minimum wage that was both totally unanticipated and free of uncertainty. The stock market response to this is examined in an event study setting. The analysis uncovers significant falls in the stock market value of low-wage firms. In light of this finding, the paper concludes by discussing magnitudes of response, including longer-term modes of firm adjustment to the cost shock induced by the minimum wage hike.

The evolution of rent sharing is studied. Based on a panel of the top 300 publicly quoted British companies over 35 years and using excess stock market returns to patenting activity as an instrument for economic rents, the paper reports evidence of a significant fall over time in the pass-through from rents to wages. It confirms that wages do respond to firm-level shocks to economic rents, but by significantly less after 2000 than during the 1980s and 1990s. The evidence of decline is robust, corroborated with alternative instruments and industry-level analysis for the United States and the European Union.