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The Effect of the New Minimum Wage Law in a Low-Wage Labor Market

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  • Lawrence F. Katz
  • Alan B. Krueger

Abstract

After nearly a decade without change, legislation that affected the Federal minimum wage in two significant ways took effect on April 1, 1990: (1) the hourly minimum wage was increased from $3.35 to $3.80; and (2) employers were enabled to pay a subminimum wage to teenage workers for up to six months. This paper examines the effect of these changes in the minimum wage law in a low-wage labor market using data from a survey of 167 fast food restaurants in Texas. We draw three main conclusions. First, our survey results indicate that less than 2 percent of fast food restaurants have taken advantage of the youth subminimum, even though 73 percent of the sampled restaurants paid a starting wage of less than $3.80 before the new minimum wage took effect. Second, we find that a sizeable minority of fast food restaurants increased wages for workers by an amount exceeding that necessary to comply with the higher minimum wage. Third, the majority of fast food restaurants in Texas that were directly affected by the minimum wage increase did not report that they attempted to offset their mandated wage increase by cutting fringe benefits or reducing employment.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3655.

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Date of creation: Mar 1991
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Publication status: published as Industrial Relations Research Association, Proceedings, 1991.
Handle: RePEc:nbr:nberwo:3655

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References

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  1. Jean Baldwin Grossman, 1983. "The Impact of the Minimum Wage on Other Wages," Journal of Human Resources, University of Wisconsin Press, vol. 18(3), pages 359-378.
  2. Richard B. Freeman & Wayne B. Gray & Casey Ichniowski, 1981. "Low-Cost Student Labor: The Use and Effects of the Subminimum Wage Provisions for Full-time Students," NBER Working Papers 0765, National Bureau of Economic Research, Inc.
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Cited by:
  1. David Blanchflower & A Oswald, 1993. "International Wage Curve," CEP Discussion Papers, Centre for Economic Performance, LSE dp0116, Centre for Economic Performance, LSE.
    • David G. Blanchflower & Andrew Oswald, 1995. "International Wage Curves," NBER Chapters, in: Differences and Changes in Wage Structures, pages 145-174 National Bureau of Economic Research, Inc.
  2. Falk, Armin & Huffman, David B., 2006. "Studying Labor Market Institutions in the Lab: Minimum Wages, Employment Protection and Workfare," IZA Discussion Papers 2310, Institute for the Study of Labor (IZA).
  3. Schmidt, Klaus M., 2009. "Social Preferences and Competition," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University 298, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  4. Alan Krueger, 1994. "The Effect of the Minimum Wage When It Really Bites: A Reexamination of the Evidence from Puerto Rico," Working Papers, Princeton University, Department of Economics, Industrial Relations Section. 709, Princeton University, Department of Economics, Industrial Relations Section..
  5. Falk, Armin & Fehr, Ernst & Zehnder, Christian, 2005. "The Behavioral Effects of Minimum Wages," IZA Discussion Papers 1625, Institute for the Study of Labor (IZA).
  6. David Card, 1991. "Do Minimum Wages Reduce Employment? A Case Study of California, 1987-89," NBER Working Papers 3710, National Bureau of Economic Research, Inc.
  7. David Neumark & William Wascher, 1991. "Evidence on Employment Effects of Minimum Wages and Subminimum Wage Provisions From Panel Data on State Minimum Wage Laws," NBER Working Papers 3859, National Bureau of Economic Research, Inc.
  8. James B. Rebitzer & Lowell J. Taylor, 1991. "The Consequences of Minimum Wage Laws: Some New Theoretical Ideas," NBER Working Papers 3877, National Bureau of Economic Research, Inc.

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