Working Paper: NBER ID: w25434
Authors: Doruk Cengiz; Arindrajit Dube; Attila Lindner; Ben Zipperer
Abstract: We propose a novel method that infers the employment effect of a minimum wage increase by comparing the number of excess jobs paying at or slightly above the new minimum wage to the missing jobs paying below it. To implement our approach, we estimate the effect of the minimum wage on the frequency distribution of hourly wages using 138 prominent state-level minimum wage changes between 1979 and 2016. We find that the overall number of low-wage jobs remained essentially unchanged over five years following the increase. At the same time, the direct effect of the minimum wage on average earnings was amplified by modest wage spillovers at the bottom of the wage distribution. Our estimates by detailed demographic groups show that the lack of job loss is not explained by labor-labor substitution at the bottom of the wage distribution. We also find no evidence of disemployment when we consider higher levels of minimum wages. However, we do find some evidence of reduced employment in tradable sectors. In contrast to our bunching-based estimates, we show that some conventional studies can produce misleading inference due to spurious changes in employment higher up in the wage distribution.
Keywords: Minimum Wage; Employment Effects; Wage Distribution; Bunching Estimator
JEL Codes: J23; J38; J88
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| minimum wage increase (J38) | number of low-wage jobs (F66) |
| minimum wage increase (J38) | jobs below the new minimum wage (J38) |
| minimum wage increase (J38) | jobs at minimum wage and slightly above (J38) |
| minimum wage increase (J38) | employment for affected workers (J68) |
| minimum wage increase (J38) | average wages of affected workers (J31) |
| minimum wage increase (J38) | wage spillovers (J31) |
| wage spillovers (J31) | overall wage increase from minimum wage changes (J38) |
| minimum wage increase (J38) | negative employment effects in tradable sectors (F66) |
| minimum wage increase (J38) | negative employment effects in manufacturing (F66) |