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Minimum Wages in the United States, the OECD and Emerging Markets

Paper Session

Sunday, Jan. 7, 2024 8:00 AM - 10:00 AM (CST)

Convention Center, 221B
Hosted By: American Economic Association
  • Chair: Charles Brown, University of Michigan

Racial Inequality, Minimum Wage Spillovers, and the Informal Sector

Ellora Derenoncourt
,
Princeton University
François Gérard
,
Queen Mary University of London
Lorenzo Lagos
,
Princeton University
Claire Montialoux
,
University of California-Berkeley and Sciences Po-Paris

Abstract

This paper studies how a national minimum wage affects wages, and in particular, racial earnings disparities in a middle-income country with a large informal sector. Our context is the Brazilian economy, characterized by persistently large racial disparities and the availability of detailed labor force surveys and administrative matched employer employee data with information on race. We analyze the effect of large increases in the minimum wage that occurred between 1999 and 2009. Using a variety of research designs and identification strategies, we obtain three main findings. First, the increase in the minimum wage erased the racial earnings gap up to the 10th percentile of the national wage distribution and up to the 30th percentile in the lowest wage region, the Northeast. Second, there is no evidence of significant reallocation of workers from the formal sector to the informal sector. This can be explained by the fact that the minimum wage is de facto binding in the informal sector (excluding agriculture, domestic workers, and the self-employed). Third, we do not find evidence of significant dis-employment effects, or of white-nonwhite labor-labor substitution. As a result, the minimum wage increases of the 2000s led to a large decline in the economy-wide racial income gap in Brazil.

What's across the Border? Re-Evaluating the Cross-Border Evidence on Minimum Wage Effects

Priyaranjan Jha
,
University of California-Irvine
David Neumark
,
University of California-Irvine
Antonio Rodriguez-Lopez
,
University of California-Irvine

Abstract

Dube, Lester, and Reich (2010) argue that state-level minimum wage variation can be correlated with economic shocks, generating spurious evidence that higher minimum wages reduce employment. Using minimum wage variation within contiguous county pairs that share a state border, they find no relationship between minimum wages and employment in the U.S. restaurant industry. We show that this finding hinges critically on using cross-border counties to define local economic areas with which to control for economic shocks that are potentially correlated with minimum wage changes. We use, instead, multi-state commuting zones, which provide superior definitions of local economic areas. Using the same within-local area research design—but within cross-border commuting zones—we find a robust negative relationship between minimum wages and employment.

Minimum Wage Effects and Monopsony Explanations

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

Abstract

We present the first causal analysis of recent large minimum wage increases, focusing on 36 large U.S. counties that reached $15 or more by 2022q1. Using novel stacked county-level synthetic control estimators, we find substantial pay growth and no disemployment effects. These results hold even if we look at only lower-wage counties or counties that did not choose to pass local minimum wage legislation. We go on to document the presence of monopsony in the restaurant industry. We show that minimum wages reduce restaurant workers' separation rates, and that they caused McDonald's workers' wages to grow faster than the prices of Big Macs, suggesting the presence of monopsony power and positive economic profits. Lastly, we discuss how the pandemic and its aftereffects can confound estimates of the impacts of these high minimum wages, and propose a way to ameliorate this issue.

Minimum Wages at a Turning Point?

Balazs Egert
,
Organisation for Economic Co-operation and Development
Jarmila Botev
,
Organisation for Economic Co-operation and Development
David Turner
,
Organisation for Economic Co-operation and Development

Abstract

This paper uses cross-country macroeconomic data for 38 OECD countries from 1985 to 2020 to study whether raising the minimum wage (relative to the median wage) from an already high level might harm the employment of vulnerable workers, including young, female and older workers. The paper also studies whether employment effects of minimum wage rises interact with other labour market regulations and characteristics. The paper finds that increases in minimum wages above 60% of the median wage result in job losses for female and older workers in OECD countries with strict Employment Protection Legislation (EPL) regulations and with a high tax wedge but much less so in countries with less regulated labour markets. The paper uses a newly assembled dataset on sub-minimum wages applied to young workers and demonstrates that a lower minimum wage for youths can help offset at least in part the adverse effect on youth employment. The paper argues that for a number of reasons, these results should be seen as a complement, rather than a substitute for, or inferior to, the conclusions from single country micro-based studies.

Discussant(s)
Charles Brown
,
University of Michigan
Damián Vergara Dominguez
,
Princeton University
Ben Zipperer
,
Economic Policy Institute
JEL Classifications
  • J2 - Demand and Supply of Labor
  • J3 - Wages, Compensation, and Labor Costs