Working Paper: NBER ID: w7519
Authors: David Neumark; Mark Schweitzer; William Wascher
Abstract: This paper provides evidence on a wide set of margins along which labor markets can adjust in response to increases in the minimum wage, including wages, hours, employment, and ultimately labor income, representing the central margins of adjustment that impact the economic well-being of workers potentially affected by minimum wage increases. The evidence indicates that workers initially earning near the minimum wage are adversely affected by minimum wage increases, while, not surprisingly, higher-wage workers are little affected. Although wages of low-wage workers increase , their hours and employment decline, and the combined effect of these changes is a decline in earned income. We also delve into the political economy of minimum wages, attempting to understand the vigorous support of labor unions for minimum wage increases. Using the same empirical framework, we find that relatively low-wage union members gain at the expense of the lowest-wage nonunion workers when minimum wages increase.
Keywords: Minimum Wage; Labor Market; Wage Distribution; Economic Wellbeing
JEL Codes: J18; I3; J23; D31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Minimum wage increase (J38) | decrease in hours worked (J22) |
| Minimum wage increase (J38) | decrease in employment (J63) |
| Minimum wage increase (J38) | decrease in earned income (J31) |
| Minimum wage increase (J38) | redistribution of income among worker classifications (E25) |
| Minimum wage increase (J38) | benefit to low-wage union members (J50) |
| Minimum wage increase (J38) | adverse effect on lowest-wage nonunion workers (F66) |