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New Research on Minimum Wage Increases

Paper Session

Saturday, Jan. 7, 2023 8:00 AM - 10:00 AM (CST)

Hilton Riverside, Steering
Hosted By: Labor and Employment Relations Association
  • Chair: Kate Bahn, Washington Center for Equitable Growth

Minimum Wages and Employment Composition

Ashvin Gandhi
,
University of California-Los Angeles
Krista Ruffini
,
Georgetown University

Abstract

This paper examines how minimum wages change the types of workers that firms employ and the allocation of hours across these workers. We leverage shift-level data for the universe of nursing home employees matched to more than 300 state, county, and city minimum wage changes between 2016 and 2019. We find that higher minimum wages shift the allocation of hours towards workers with high levels of firm-specific experience, driven by greater retention amongst the most experienced workers. We use our reduced-form estimates to simulate the long-term effect of a \$1 increase in the minimum wage and find such a reform would increase the share of hours worked by employees with more than one year of full-time employment by 14 percent.

Are $15 Minimum Wages Too High?

Carl McPherson
,
University of California-Berkeley
Michael Reich
,
University of California-Berkeley
Justin Wiltshire
,
University of California-Berkeley

Abstract

We present the first causal estimates of the wage and employment effects of $15 minimum wages in all 42 large U.S. cities or counties that reached or exceeded this level by the first half of 2022. These areas--26 in California, 12 in New York State, plus Chicago, Denver, Seattle, and Washington DC--make up an economically diverse set of labor markets. \$15 minimum wages considerably exceed those previously studied for the U.S. Whether we use stacked synthetic control or dynamic regression-based methods, we find substantial and ongoing pay increases throughout the treatment period, and we generally do not detect any significant disemployment effects. These results hold true in our analyses of all jobs and in highly-affected sub-samples, such as all restaurant workers, fast food workers and teens, as well as in relatively low-wage counties where minimum-to-median wage ratios exceed 80 percent.

How Do Small Firms Accommodate Minimum Wage Increases? Evidence from Matched Employer-Employee Tax Returns

Nirupama L. Rao
,
University of Michigan
Max Risch
,
Carnegie Mellon University

Abstract

Using new data matching the universe of U.S. tax returns of pass-through firms and their workers over a 15 year period, we examine the impact of higher state minimum wages on small and medium sized businesses. We find that small firms incur significant wage bill increases when minimum wages are raised. Higher minimum wages do not, however, increase the exit rate of small firms or pass-through firms overall. Instead, pass-through entities accommodate higher minimum wages through higher revenue. For small firms these revenue increases outpace wage bill increases, leading to higher average profits in the years after a minimum wage increase. We show that these surprising findings can be rationalized in a framework where smaller firms operate in product markets alongside a larger firm with price-setting power that is more affected by a given cost shock, as is the case with minimum wages. Our findings highlight the importance of understanding the heterogeneous impacts of wage floors on firms of different sizes and how product market dynamics affect the eventual incidence of these policies.

Left Out: Measuring Minimum Wage Effects on Wage Earners and the Self-employed Using Tax Data from Washington, DC

Carmen Sanchez Cumming
,
Washington Center for Equitable Growth
Daniel Muhammad
,
District of Columbia Government
Yi Geng
,
District of Columbia Government
Corey Husak
,
U.S. Senate Offices

Abstract

We use panel administrative tax data from the IRS and the Office of the Chief Financial Officer of the District of Columbia to examine the effect of a large minimum wage increase on income, labor force drop-out, and on the substitution of wage-earning work for self-employment. Starting in 2014, the District of Columbia engaged in a series of annual hikes that lifted the minimum wage from $8.25 in 2013 to $14 in 2019. We divide Washington, DC taxpayers into "primarily wage earners" and "majority self-employed" and find that switching from wage-earning to self-employment was generally associated with income declines, even several years after the switch. Conversely, switching to wage-earning was associated with large, immediate, sustained income increases. Our estimates show that workers who earned less than $22,000 in 2013 and who became self-employed reported less income in 2018 than they had in 2010. Similar workers who became wage-earners doubled their income over that same time period. These results are partially driven by an increase in the minimum wage. Wage workers at establishments subject to the new wage floor saw incomes increase by 28-34% above similar workers at unaffected establishments. Further, the number of Washingtonians who relied primarily on self-employment for income was rising before 2014. After the minimum wage increase, the number of majority self-employed Washingtonians began to fall, driven by low-income workers shifting to wage employment.

Discussant(s)
Orley Ashenfelter
,
Princeton University
Ben Zipperer
,
Economic Policy Institute
JEL Classifications
  • J3 - Wages, Compensation, and Labor Costs
  • J8 - Labor Standards: National and International