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Employer Responses to Minimum Wage Policy

Paper Session

Tuesday, Jan. 5, 2021 3:45 PM - 5:45 PM (EST)

Hosted By: Labor and Employment Relations Association
  • Chair: Daniel Aaronson, Federal Reserve Bank of Chicago

The Effect of Minimum Wage Policies on the Wage and Occupational Structure of Establishments

Eliza Forsythe
University of Illinois-Urbana-Champaign


Minimum wage increases often result in spillovers above the strict minimum wage cutoff, however the mechanism behind these spillovers is not well understood. Using establishment-level panel data from the Occupational Employment Statistics program,I estimate the effect of minimum wage increases implemented by 10 states in 2014and 2015 on establishment wage and occupational structures. I show that minimum wage increases lead to wage spillovers within establishments. I find no evidence that minimum wage increases induce establishments to reorganize their occupational structure across major occupational groups, however I find it does lead to a 1% increase in reallocation within 2 digit occupations. In addition, I do not find any major effect of minimum wage increases on the type of establishment that closes or the occupation or wage structure of newly opened establishments. Finally, I find that minimum wage increases propagate up the management hierarchy, leading to increased wages for supervisors. Nonetheless, I find overall wage inequality decreases within establishments after minimum wage increases

What Do Establishments Do When Wages Increase? Evidence from Minimum Wage in the United States

Yuci Chen
University of Illinois-Urbana-Champaign


I investigate how establishments adjust their production plans on various margins when wage rates increase. Exploiting state-by-year variation in minimum wage, I analyze U.S. manufacturing plants’ responses over a 23-year period. Using instrumental variable method and Census Microdata, I find that when the hourly wage of production workers increases by one percent, manufacturing plants reduce the total hours worked by production workers by 0.7 percent and increase capital expenditures on machinery and equipment by 2.7 percent. The reduction in total hours worked by production workers is driven by intensive-margin changes. The estimated elasticity of substitution between capital and labor is 0.85. Following the wage increases, no statistically significant changes emerge in revenue, materials or total factor productivity. Additionally, I find that when wage rates increase, establishments are more likely to exit the market. Finally, I provide evidence that when the minimum wage increases the wages of some of the establishments in a firm, the firm also increases the wages for its other establishments.

Across-Country Wage Compression in Multinationals

Xuan Li
Hong Kong University of Science and Technology


Many employers link wages at the firm's establishments outside of the home region to the level at headquarters. Multinationals that anchor-to-the headquarters also transmit wage changes arising from shocks to minimum wages and exchange rates in the home country/state to their foreign establishments. Such multinationals fire more low-skill workers and hire fewer new workers abroad after a permanent (minimum wage-induced) foreign establishment wage increase originating in shocks to headquarter wages, but not after a temporary (exchange rate-induced) one. We show this using data on 1,060 multinationals' establishments across the world and in employee-level data on the same employers' establishments in Brazil.
Brian Phelan
DePaul University
Krista Ruffini
University of California-Berkeley
Marta Lachowska
W.E. Upjohn Institute
JEL Classifications
  • J2 - Demand and Supply of Labor
  • J3 - Wages, Compensation, and Labor Costs