Working Paper: NBER ID: w27928
Authors: Arindrajit Dube; Attila S. Lindner
Abstract: Cities are increasingly setting their own minimum wages, and this trend has accelerated sharply in recent years. While in 2010 there were only three cities with their own minimum wages exceeding the state or federal standard, by 2020 there were 42. This new phenomenon raises the question: is it desirable to have city-level variation in minimum wage polices? We discuss the main trade-offs emerging from local variation in minimum wage polices and evaluate their empirical relevance. First, we document what type of cities raise minimum wages and we discuss how these characteristics can potentially impact the effectiveness of city-level minimum wage policies. Second, we summarize the evolving evidence on city-level minimum wage changes and provide some new evidence of our own. Early evidence suggests that the impact of the policy on wages and employment to date has been broadly similar to the evidence on state and federal-level minimum wage changes. Overall, city-level minimum wages seem to be able to tailor the policy to local economic environment without imposing substantial distortions in allocation of labor and businesses across locations.
Keywords: minimum wage; local variation; employment; wages; city-level policies
JEL Codes: J01; J18; J2; J23; J3; J31; J38; J8; J88
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| city-level minimum wage policies (J38) | wages in the bottom quartile of the wage distribution (J31) |
| city-level minimum wage policies (J38) | employment prospects for low-wage workers (F66) |
| city-level minimum wage policies (J38) | higher consumer prices (D19) |
| city-level minimum wage policies (J38) | reductions in labor turnover costs (J63) |
| city-level minimum wage policies (J38) | wages (J31) |