Parental Labor Supply: Evidence from Minimum Wage Changes. Working Paper #103-19

Declining labor force participation rates among less-educated individuals in the U.S. have been attributed to various causes, including skill-biased technical change, demand shocks induced by international competition, looser eligibility requirements for disability insurance, the opioid epidemic and the nature of child care and family leave policies. In this paper, we examine how the labor supply of parents of dependent children respond to minimum wage changes. We implement an event study framework and document a sharp rise in employment and earnings of parents after state minimum wage increases. We further show that these effects are concentrated among jobs that pay the minimum wage or slightly higher – high wage employment remains unaffected. Panel models find corresponding drops in welfare receipts, moreover, for single mothers, effects are larger for mothers of preschool age children. The results are consistent with a simple labor supply model in which means-tested transfers and fixed costs of work in the form of paid childcare create barriers to labor market entry for parents of dependent children. Minimum wage increases then enable higher rates of parental labor force participation, resulting in significant reductions in child poverty. We find no evidence of employment crowd-out among non-parents, suggesting potential overall welfare gains from higher minimum wages.