IDEAS home Printed from https://ideas.repec.org/p/cep/cepdps/dp1531.html
   My bibliography  Save this paper

The effect of minimum wages on low-wage jobs: evidence from the United States using a bunching estimator

Author

Listed:
  • Doruk Cengiz
  • Arindrajit Dube
  • Attila Lindner
  • Ben Zipperer

Abstract

We propose a novel method that infers the employment effect of a minimum wage increase by comparing the number of excess jobs paying at or slightly above the new minimum wage to the missing jobs paying below it. Using state-level variation in U.S. minimum wages, we implement our method by providing new estimates on the effect of the minimum wage on the frequency distribution of hourly wages. First, we present a case study of a large, indexed minimum wage increase using administrative data on hourly wages from Washington state. Then we implement an event study analysis pooling 138 minimum wage increases between 1979 and 2016. In both cases, we find that the overall number of low-wage jobs remained essentially unchanged. At the same time, the direct effect of the minimum wage on average earnings was amplified by modest wage spillovers at the bottom of the wage distribution. Our estimates by detailed demographic groups show that the lack of job loss is not explained by labor-labor substitution at the bottom of the wage distribution. We also find no evidence of disemployment when we consider higher levels of minimum wages. However, we do find some evidence of reduced employment in tradable sectors. In contrast to our bunching-based estimates, we show that conventional studies can produce misleading inference due to spurious changes in employment higher up in the wage distribution.

Suggested Citation

  • Doruk Cengiz & Arindrajit Dube & Attila Lindner & Ben Zipperer, 2018. "The effect of minimum wages on low-wage jobs: evidence from the United States using a bunching estimator," CEP Discussion Papers dp1531, Centre for Economic Performance, LSE.
  • Handle: RePEc:cep:cepdps:dp1531
    as

    Download full text from publisher

    File URL: https://cep.lse.ac.uk/pubs/download/dp1531.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Sylvia Allegretto & Arindrajit Dube & Michael Reich & Ben Zipperer, 2017. "Credible Research Designs for Minimum Wage Studies," ILR Review, Cornell University, ILR School, vol. 70(3), pages 559-592, May.
    2. DiNardo, John & Fortin, Nicole M & Lemieux, Thomas, 1996. "Labor Market Institutions and the Distribution of Wages, 1973-1992: A Semiparametric Approach," Econometrica, Econometric Society, vol. 64(5), pages 1001-1044, September.
    3. John M. Abowd & Francis Kramarz & Thomas Lemieux & David N. Margolis, 2000. "Minimum Wages and Youth Employment in France and the United States," NBER Chapters, in: Youth Employment and Joblessness in Advanced Countries, pages 427-472, National Bureau of Economic Research, Inc.
    4. Dickens, Richard & Machin, Stephen & Manning, Alan, 1998. "Estimating the effect of minimum wages on employment from the distribution of wages: A critical view," Labour Economics, Elsevier, vol. 5(2), pages 109-134, June.
    5. Christopher J. Flinn, 2006. "Minimum Wage Effects on Labor Market Outcomes under Search, Matching, and Endogenous Contact Rates," Econometrica, Econometric Society, vol. 74(4), pages 1013-1062, July.
    6. 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.
    7. Raj Chetty & John N. Friedman & Emmanuel Saez, 2013. "Using Differences in Knowledge across Neighborhoods to Uncover the Impacts of the EITC on Earnings," American Economic Review, American Economic Association, vol. 103(7), pages 2683-2721, December.
    8. Arindrajit Dube & Laura Giuliano & Jonathan Leonard, 2019. "Fairness and Frictions: The Impact of Unequal Raises on Quit Behavior," American Economic Review, American Economic Association, vol. 109(2), pages 620-663, February.
    9. Brown, Kristine M., 2013. "The link between pensions and retirement timing: Lessons from California teachers," Journal of Public Economics, Elsevier, vol. 98(C), pages 1-14.
    10. Jonathan Meer & Jeremy West, 2016. "Effects of the Minimum Wage on Employment Dynamics," Journal of Human Resources, University of Wisconsin Press, vol. 51(2), pages 500-522.
    11. 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.
    12. Alan Manning, 2021. "The Elusive Employment Effect of the Minimum Wage," Journal of Economic Perspectives, American Economic Association, vol. 35(1), pages 3-26, Winter.
    13. Niklas Engbom & Christian Moser, 2022. "Earnings Inequality and the Minimum Wage: Evidence from Brazil," American Economic Review, American Economic Association, vol. 112(12), pages 3803-3847, December.
    14. Daniel Aaronson & Eric French, 2007. "Product Market Evidence on the Employment Effects of the Minimum Wage," Journal of Labor Economics, University of Chicago Press, vol. 25(1), pages 167-200.
    15. Evan Totty, 2017. "The Effect Of Minimum Wages On Employment: A Factor Model Approach," Economic Inquiry, Western Economic Association International, vol. 55(4), pages 1712-1737, October.
    16. Butcher, Tim & Dickens, Richard & Manning, Alan, 2012. "Minimum wages and wage inequality: some theory and an application to the UK," LSE Research Online Documents on Economics 48937, London School of Economics and Political Science, LSE Library.
    17. David H. Autor & Alan Manning & Christopher L. Smith, 2016. "The Contribution of the Minimum Wage to US Wage Inequality over Three Decades: A Reassessment," American Economic Journal: Applied Economics, American Economic Association, vol. 8(1), pages 58-99, January.
    18. Emmanuel Saez, 2010. "Do Taxpayers Bunch at Kink Points?," American Economic Journal: Economic Policy, American Economic Association, vol. 2(3), pages 180-212, August.
    19. David H. Autor & John J. Donohue & Stewart J. Schwab, 2006. "The Costs of Wrongful-Discharge Laws," The Review of Economics and Statistics, MIT Press, vol. 88(2), pages 211-231, May.
    20. David Card, 1992. "Using Regional Variation in Wages to Measure the Effects of the Federal Minimum Wage," Working Papers 680, Princeton University, Department of Economics, Industrial Relations Section..
    21. Teulings, Coen N, 2000. "Aggregation Bias in Elasticities of Substitution and the Minimum Wage Paradox," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(2), pages 359-398, May.
    22. Lawrence F. Katz & Alan B. Krueger, 1992. "The Effect of the Minimum Wage on the Fast-Food Industry," ILR Review, Cornell University, ILR School, vol. 46(1), pages 6-21, October.
    23. Gary Solon & Steven J. Haider & Jeffrey M. Wooldridge, 2015. "What Are We Weighting For?," Journal of Human Resources, University of Wisconsin Press, vol. 50(2), pages 301-316.
    24. Barry T. Hirsch & Edward J. Schumacher, 2004. "Match Bias in Wage Gap Estimates Due to Earnings Imputation," Journal of Labor Economics, University of Chicago Press, vol. 22(3), pages 689-722, July.
    25. David S. Lee, 1999. "Wage Inequality in the United States During the 1980s: Rising Dispersion or Falling Minimum Wage?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(3), pages 977-1023.
    26. Gerard J. van den Berg & Geert Ridder, 1998. "An Empirical Equilibrium Search Model of the Labor Market," Econometrica, Econometric Society, vol. 66(5), pages 1183-1222, September.
    27. Laura Giuliano, 2013. "Minimum Wage Effects on Employment, Substitution, and the Teenage Labor Supply: Evidence from Personnel Data," Journal of Labor Economics, University of Chicago Press, vol. 31(1), pages 155-194.
    28. David Fairris & Leon Fernandez Bujanda, 2008. "The Dissipation of Minimum Wage Gains for Workers through Labor-Labor Substitution: Evidence from the Los Angeles Living Wage Ordinance," Southern Economic Journal, John Wiley & Sons, vol. 75(2), pages 473-496, October.
    29. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, April.
    30. Arindrajit Dube & T. William Lester & Michael Reich, 2010. "Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties," The Review of Economics and Statistics, MIT Press, vol. 92(4), pages 945-964, November.
    31. Lawrence Katz & Alan Krueger, 1992. "The Effect of the Minimum Wage on the Fast Food Industry," Working Papers 678, Princeton University, Department of Economics, Industrial Relations Section..
    32. van den Berg, Gerard J, 1999. "Empirical Inference with Equilibrium Search Models of the Labour Market," Economic Journal, Royal Economic Society, vol. 109(456), pages 283-306, June.
    33. David Neumark & J. M. Ian Salas & William Wascher, 2014. "Revisiting the Minimum Wage—Employment Debate: Throwing Out the Baby with the Bathwater?," ILR Review, Cornell University, ILR School, vol. 67(3_suppl), pages 608-648, May.
    34. Josh Kinsler, 2016. "Teacher Complementarities in Test Score Production: Evidence from Primary School," Journal of Labor Economics, University of Chicago Press, vol. 34(1), pages 29-61.
    35. Meyer, Robert H & Wise, David A, 1983. "The Effects of the Minimum Wage on the Employment and Earnings of Youth," Journal of Labor Economics, University of Chicago Press, vol. 1(1), pages 66-100, January.
    36. Sun, Liyang & Abraham, Sarah, 2021. "Estimating dynamic treatment effects in event studies with heterogeneous treatment effects," Journal of Econometrics, Elsevier, vol. 225(2), pages 175-199.
    37. F. Comte & C. Lacour, 2011. "Data‐driven density estimation in the presence of additive noise with unknown distribution," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 73(4), pages 601-627, September.
    38. Isaac Sorkin, 2015. "Are There Long-Run Effects of the Minimum Wage?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(2), pages 306-333, April.
    39. David Neumark & William Wascher, 1992. "Employment Effects of Minimum and Subminimum Wages: Panel Data on State Minimum Wage Laws," ILR Review, Cornell University, ILR School, vol. 46(1), pages 55-81, October.
    40. Atif Mian & Amir Sufi, 2014. "What Explains the 2007–2009 Drop in Employment?," Econometrica, Econometric Society, vol. 82, pages 2197-2223, November.
    41. Ekaterina Jardim & Mark C. Long & Robert Plotnick & Emma van Inwegen & Jacob Vigdor & Hilary Wething, 2017. "Minimum Wage Increases, Wages, and Low-Wage Employment: Evidence from Seattle," NBER Working Papers 23532, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Arindrajit Dube & Attila Lindner, 2024. "Minimum Wages in the 21st Century," RF Berlin - CReAM Discussion Paper Series 2524, Rockwool Foundation Berlin (RF Berlin) - Centre for Research and Analysis of Migration (CReAM).
    2. Doruk Cengiz & Arindrajit Dube & Attila Lindner & Ben Zipperer, 2019. "The Effect of Minimum Wages on Low-Wage Jobs," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(3), pages 1405-1454.
    3. Medrano-Adán, Luis & Salas-Fumás, Vicente, 2023. "Do minimum wages deliver what they promise? Effects of minimum wage on employment, output, and income inequality from occupational choice theory," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 366-383.
    4. David Neumark & Peter Shirley, 2022. "Myth or measurement: What does the new minimum wage research say about minimum wages and job loss in the United States?," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 61(4), pages 384-417, October.
    5. John Horton, 2017. "Price Floors and Employer Preferences: Evidence from a Minimum Wage Experiment," CESifo Working Paper Series 6548, CESifo.
    6. Dale Belman & Paul Wolfson & Kritkorn Nawakitphaitoon, 2015. "Who Is Affected by the Minimum Wage?," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 54(4), pages 582-621, October.
    7. Garcia-Louzao, Jose & Tarasonis, Linas, 2023. "Wage and Employment Impact of Minimum Wage: Evidence from Lithuania," Journal of Comparative Economics, Elsevier, vol. 51(2), pages 592-609.
    8. Matthew T. Gustafson & Jason D. Kotter, 2023. "Higher Minimum Wages Reduce Capital Expenditures," Management Science, INFORMS, vol. 69(5), pages 2933-2953, May.
    9. Sudheer Chava & Alexander Oettl & Manpreet Singh, 2023. "Does a One-Size-Fits-All Minimum Wage Cause Financial Stress for Small Businesses?," Management Science, INFORMS, vol. 69(11), pages 7095-7117, November.
    10. Radhakrishnan Gopalan & Barton H. Hamilton & Ankit Kalda & David Sovich, 2021. "State Minimum Wages, Employment, and Wage Spillovers: Evidence from Administrative Payroll Data," Journal of Labor Economics, University of Chicago Press, vol. 39(3), pages 673-707.
    11. Sudheer Chava & Alexander Oettl & Manpreet Singh, 2023. "Does a One-Size-Fits-All Minimum Wage Cause Financial Stress for Small Businesses?," Management Science, INFORMS, vol. 69(11), pages 7095-7117, November.
    12. Neumark David, 2019. "The Econometrics and Economics of the Employment Effects of Minimum Wages: Getting from Known Unknowns to Known Knowns," German Economic Review, De Gruyter, vol. 20(3), pages 293-329, August.
    13. Emiel van Bezooijen & Wiljan van den Berge & Anna Salomons, 2024. "The Young Bunch: Youth Minimum Wages and Labor Market Outcomes," ILR Review, Cornell University, ILR School, vol. 77(3), pages 428-460, May.
    14. Jaerim Choi & Ivan Rivadeneyra & Kenia Ramirez, 2021. "Labor Market Effects of a Minimum Wage: Evidence from Ecuadorian Monthly Administrative Data," CESifo Working Paper Series 8987, CESifo.
    15. Sebastian Link, 2019. "The Price and Employment Response of Firms to the Introduction of Minimum Wages," CESifo Working Paper Series 7575, CESifo.
    16. Marianna Kudlyak & Murat Tasci & Didem Tuzemen, 2019. "Minimum Wage Increases and Vacancies," Working Papers 19-30R, Federal Reserve Bank of Cleveland, revised 21 Apr 2022.
    17. Brian Bell & Stephen Machin, 2018. "Minimum Wages and Firm Value," Journal of Labor Economics, University of Chicago Press, vol. 36(1), pages 159-195.
    18. Philipp Berge & Hanna Frings, 2020. "High-impact minimum wages and heterogeneous regions," Empirical Economics, Springer, vol. 59(2), pages 701-729, August.
    19. Niklas Engbom & Christian Moser, 2022. "Earnings Inequality and the Minimum Wage: Evidence from Brazil," American Economic Review, American Economic Association, vol. 112(12), pages 3803-3847, December.
    20. Holmlund, Bertil, 2014. "What do labor market institutions do?," Labour Economics, Elsevier, vol. 30(C), pages 62-69.

    More about this item

    Keywords

    minimum wage policy; bunching estimator; labor demand elasticity; wage distribution;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J88 - Labor and Demographic Economics - - Labor Standards - - - Public Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cep:cepdps:dp1531. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://cep.lse.ac.uk/_new/publications/discussion-papers/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.