How Do Firms Respond to Minimum Wage Increases? Understanding the Relevance of Non-employment Margins
Journal of Economic Perspectives
vol. 35,
no. 1, Winter 2021
(pp. 51-72)
(Complimentary)
Abstract
This paper discusses non-employment margins through which firms may respond to minimum wage increases. Margins of interest include evasion, output prices, noncash compensation, job attributes including effort requirements, the firm’s mix of low- and high-skilled labor, and the firm’s mix of labor and capital. I discuss the basic theory behind each margin’s potential importance as well as findings from empirical research on their real-world relevance. Additionally, I present a set of pedagogical diagrams that show how supply and demand analyses of labor markets can be extended to bring additional nuances of real-world markets into the classroom.Citation
Clemens, Jeffrey. 2021. "How Do Firms Respond to Minimum Wage Increases? Understanding the Relevance of Non-employment Margins." Journal of Economic Perspectives, 35 (1): 51-72. DOI: 10.1257/jep.35.1.51Additional Materials
JEL Classification
- D24 Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- J22 Time Allocation and Labor Supply
- J23 Labor Demand
- J31 Wage Level and Structure; Wage Differentials
- J32 Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
- J38 Wages, Compensation, and Labor Costs: Public Policy
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