The Effect of Minimum Wages on Low-Wage Jobs*

TLDR

The study estimates the impact of state minimum wage increases on low‑wage employment using a difference‑in‑differences design across 138 changes from 1979 to 2016. Employing a wage‑bin analysis, the authors compare excess jobs at or just above the new minimum wage to missing jobs below it to infer employment effects and decompose overall impacts. Results show that low‑wage jobs remained essentially unchanged over five years, with modest wage spillovers raising average earnings, no evidence of disemployment at higher wage levels, and only limited employment losses in tradeable sectors.

Abstract

Abstract We estimate the effect of minimum wages on low-wage jobs using 138 prominent state-level minimum wage changes between 1979 and 2016 in the United States using a difference-in-differences approach. We first estimate the effect of the minimum wage increase on employment changes by wage bins throughout the hourly wage distribution. We then focus on the bottom part of the wage distribution and compare the number of excess jobs paying at or slightly above the new minimum wage to the missing jobs paying below it to infer the employment effect. We find that the overall number of low-wage jobs remained essentially unchanged over the five years following the increase. At the same time, the direct effect of the minimum wage on average earnings was amplified by modest wage spillovers at the bottom of the wage distribution. Our estimates by detailed demographic groups show that the lack of job loss is not explained by labor-labor substitution at the bottom of the wage distribution. We also find no evidence of disemployment when we consider higher levels of minimum wages. However, we do find some evidence of reduced employment in tradeable sectors. We also show how decomposing the overall employment effect by wage bins allows a transparent way of assessing the plausibility of estimates.