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Minimum wage and transition of non-employer firms intending to hire employees into employer firms: State-level evidence from the US

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  • Patel, Pankaj C.

Abstract

Among the non-employer firms who intend to hire, the higher state-level minimum wage could dissuade them from becoming employer firms. Using data from Business Formation Statistics in the US, we assess the effect of within-state variation in minimum wage on three state-level outcomes: count of business applications for Employer Identification Number (EIN) from firms intending to hire employees; count of firms who transition into employer firms after their application; and average time taken by firms to transition into employer firms after application. Based on 1,692 state-quarter observations from 2005 to 2013, higher state minimum wage is negatively associated with a count of applications for EIN and count of applicants transitioning into employer business and slows the transition of applicants into employer businesses. The findings are robust to a placebo test and an alternate specification controlling for common correlation between state and year. Additional analyses on new business activity show that state minimum wage has no association with the portion of the state population starting new businesses or the share of opportunity-based (vs. necessity-based) new businesses in a state. The findings have implications for policymakers considering the relevance of minimum wage in encouraging the transition of non-employer firms intending to hire employees into employer firms.

Suggested Citation

  • Patel, Pankaj C., 2019. "Minimum wage and transition of non-employer firms intending to hire employees into employer firms: State-level evidence from the US," Journal of Business Venturing Insights, Elsevier, vol. 12(C).
    • Handle: RePEc:eee:jobuve:v:12:y:2019:i:c:s235267341930040x
    DOI: 10.1016/j.jbvi.2019.e00136
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    More about this item

    Keywords

    Minimum wage; Non-employer firms; Transition to employer firms;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law

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