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

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Author Info
Lawrence F. Katz
Alan B. Krueger

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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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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 Katz, Lawrence F. and Alan B. Krueger. "The Effect Of The Minimum Wage On The Fast-Food Industry," International Labor Relations Review, 1993, v46(1), 6-21. Industrial Relations Research Association, Proceedings, 1991.
Handle: RePEc:nbr:nberwo:3655

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Krueger, Alan B, 1991. "Ownership, Agency, and Wages: An Examination of Franchising in the Fast Food Industry," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 75-101, February. [Downloadable!] (restricted)
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  1. David G. Blanchflower & Andrew J. Oswald, 1992. "International Wage Curves," NBER Working Papers 4200, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. 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. [Downloadable!] (restricted)
  3. Alan B. Krueger, 1994. "The Effect of the Minimum Wage When It Really Bites: A Reexamination of the Evidence from Puerto Rico," NBER Working Papers 4757, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Armin Falk & David Huffman, 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). [Downloadable!]
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  5. 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. [Downloadable!] (restricted)
  6. Armin Falk & Ernst Fehr & Christian Zehnder, 2005. "The Behavioral Effects of Minimum Wages," IZA Discussion Papers 1625, Institute for the Study of Labor (IZA). [Downloadable!]
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