The Effect of Minimum Wages on Low-Wage Jobs*

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  • Doruk Cengiz
    University of Massachusetts, Amherst
  • Arindrajit Dube
    University of Massachusetts, Amherst, National Bureau of Economic Research, Institute of Labor Economics
  • Attila Lindner
    University College London, Center for Economic Performance, Institute for Fiscal Studies, Institute of Labor Economics, Research Center for Economic and Regional Studies, Hungarian Academy of Sciences
  • Ben Zipperer
    Economic Policy Institute

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<jats:title>Abstract</jats:title><jats:p>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.</jats:p>

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