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Are Minimum Wage Effects Greater in Low-Wage Areas?

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  • Godoey, Anna
  • Reich, Michael

Abstract

Empirical work on the minimum wage typically estimate effects averaged across high and low wage areas. Low wage labor markets could potentially be less able to absorb minimum wage increases, in turn leading to more negative employment effects. In this paper we examine minimum wage effects in low wage counties, where relative minimum wage ratios reach as high as .82, well beyond the state-based ratios in extant studies. Using data from the ACS, the QWI and the QCEW, we implement event study and difference-in-difference methods, estimating average causal effects for all events in our sample and separately for areas with lower and higher impacts. We find positive wage effects, especially in high impact counties, but do not detect adverse effects on employment, weekly hours or annual weeks worked. We do not find negative employment effects among women, blacks and/or Hispanics. In high impact counties, we find substantial declines in household and child poverty. These results inform policy debates about providing exemptions to a $15 federal minimum wage in low-wage areas.

Suggested Citation

  • Godoey, Anna & Reich, Michael, 2020. "Are Minimum Wage Effects Greater in Low-Wage Areas?," Institute for Research on Labor and Employment, Working Paper Series qt5w13g5bm, Institute of Industrial Relations, UC Berkeley.
    • Handle: RePEc:cdl:indrel:qt5w13g5bm
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    References listed on IDEAS

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    3. David Card, 1992. "Using Regional Variation in Wages to Measure the Effects of the Federal Minimum Wage," ILR Review, Cornell University, ILR School, vol. 46(1), pages 22-37, October.
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    6. Clemens, Jeffrey & Wither, Michael, 2019. "The minimum wage and the Great Recession: Evidence of effects on the employment and income trajectories of low-skilled workers," Journal of Public Economics, Elsevier, vol. 170(C), pages 53-67.
    7. David Card & Lawrence F. Katz & Alan B. Krueger, 1993. "An Evaluation of Recent Evidence on the Employment Effects of Minimum and Subminimum Wages," NBER Working Papers 4528, National Bureau of Economic Research, Inc.
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