Working Paper: NBER ID: w26571
Authors: Lev Drucker; Katya Mazirov; David Neumark
Abstract: A key goal of a higher minimum wage is income redistribution towards low-income families. Existing research on the minimum wage focuses on the impact on affected workers, but is silent on the incomes of the owners of businesses who pay for a higher minimum wage. Higher minimum wages will do more to redistribute income if the owners of businesses who pay the minimum wage are nearer the top of the income distribution, and vice versa. We study evidence on the incidence of the minimum wage on the incomes of business owners using a unique administrative dataset on the universe of tax records for Israel, in the period surrounding a large minimum wage increase. We find that the minimum wage hike reduced profits of companies, with minimum-wage intensive companies bearing the bulk of the cost and adjusting their workforces more aggressively. Notably, profits declined more for lower-income business owners. Moreover, owners of businesses with higher shares of minimum-wage workers ranked at the bottom of the income distribution of business owners. In addition, spouses of business owners earn less than the owners while minimum wage workers have higher earning spouses, further reducing the redistributive effect of the minimum wage.
Keywords: minimum wage; income distribution; business owners; redistribution
JEL Codes: H22; H23; J23; J38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| minimum wage increases (J38) | business profitability (L21) |
| minimum wage increases (J38) | profits for companies with high fmw (G32) |
| minimum wage increases (J38) | lower-income business owners' profits (D33) |
| minimum wage increases (J38) | business owner income levels (D31) |
| higher fmw (Y20) | lower income distribution ranking of business owners (D31) |
| minimum wage workers' spouses earning higher (J31) | diminishing redistributive effect of minimum wage (J38) |