Working Paper: NBER ID: w3655
Authors: Lawrence F. Katz; Alan B. Krueger
Abstract: After nearly a decade without change, legislation that affected the Federal minimum wage in two significant ways took effect on April 1, 1990: (1) the hourly minimum wage was increased from $3.35 to $3.80; and (2) employers were enabled to pay a subminimum wage to teenage workers for up to six months. This paper examines the effect of these changes in the minimum wage law in a low-wage labor market using data from a survey of 167 fast food restaurants in Texas. We draw three main conclusions. First, our survey results indicate that less than 2 percent of fast food restaurants have taken advantage of the youth subminimum, even though 73 percent of the sampled restaurants paid a starting wage of less than $3.80 before the new minimum wage took effect. Second, we find that a sizeable minority of fast food restaurants increased wages for workers by an amount exceeding that necessary to comply with the higher minimum wage. Third, the majority of fast food restaurants in Texas that were directly affected by the minimum wage increase did not report that they attempted to offset their mandated wage increase by cutting fringe benefits or reducing employment.
Keywords: minimum wage; labor market; fast food restaurants
JEL Codes: J38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| minimum wage increase (J38) | starting wages (J31) |
| minimum wage increase (J38) | utilization of youth subminimum wage (J38) |
| minimum wage increase (J38) | wage hierarchy maintenance (J31) |
| minimum wage increase (J38) | wage distribution compression (J31) |
| minimum wage increase (J38) | non-wage offsets (J32) |