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Minimum Wage Effects on Hours, Employment and Number of Firms: The Iowa Case

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  • Orazem, Peter
  • Mattila, J. Peter

Abstract

Research on Iowa low-wage retail and service industries supports the view that minimum wages lower employment opportunities for workers. The sample period includes three successive changes in the Iowa minimum wage in 1990, 1991, and 1992, during which time the Iowa rate exceeded the federal minimum wage and that of its surrounding states. Firm-level longitudinal data which separated sub- from superminimum workers yielded employment demand elasticities ranging from -0.3 to -0.7. Hours elasticities were even larger, implying that the increases in minimum wages lowered earnings for subminimum workers. These findings are corroborated by analysis of county-level, two-digit industry data. Minimum wages also reduced the number of firms, but increased average firm size in these industries.

Suggested Citation

  • Orazem, Peter & Mattila, J. Peter, 2002. "Minimum Wage Effects on Hours, Employment and Number of Firms: The Iowa Case," Staff General Research Papers Archive 4053, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genres:4053
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    References listed on IDEAS

    as
    1. 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..
    2. Brown, Charles & Gilroy, Curtis & Kohen, Andrew, 1982. "The Effect of the Minimum Wage on Employment and Unemployment," Journal of Economic Literature, American Economic Association, vol. 20(2), pages 487-528, June.
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    Cited by:

    1. Céspedes, Nikita & Sánchez, Alan, 2013. "Minimum Wage and Job Mobility," Working Papers 2013-012, Banco Central de Reserva del Perú.
    2. Addison, John T. & Blackburn, McKinley L. & Cotti, Chad D., 2009. "Do minimum wages raise employment? Evidence from the U.S. retail-trade sector," Labour Economics, Elsevier, vol. 16(4), pages 397-408, August.
    3. Arindrajit Dube & Attila Lindner, 2024. "Minimum Wages in the 21st Century," RFBerlin Discussion Paper Series 2425, ROCKWOOL Foundation Berlin (RFBerlin).
    4. John T. Addison & McKinley L. Blackburn & Chad D. Cotti, 2012. "The Effect of Minimum Wages on Labour Market Outcomes: County-Level Estimates from the Restaurant-and-Bar Sector," British Journal of Industrial Relations, London School of Economics, vol. 50(3), pages 412-435, September.
    5. Li, Xiaoying & Shi, Dongbo & Zhou, Sifan, 2023. "The minimum wage and the locations of new business entries in China: Estimates based on a refined border approach," Regional Science and Urban Economics, Elsevier, vol. 99(C).
    6. Jeffrey P. Thompson, 2009. "Using Local Labor Market Data to Re-Examine the Employment Effects of the Minimum Wage," ILR Review, Cornell University, ILR School, vol. 62(3), pages 343-366, April.
    7. 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.
    8. Addison, John T. & Blackburn, McKinley L. & Cotti, Chad, 2008. "New Estimates of the Effects of Minimum Wages in the U.S. Retail Trade Sector," IZA Discussion Papers 3597, Institute of Labor Economics (IZA).
    9. Drucker, Lev & Mazirov, Katya & Neumark, David, 2021. "Who pays for and who benefits from minimum wage increases? Evidence from Israeli tax data on business owners and workers," Journal of Public Economics, Elsevier, vol. 199(C).
    10. Katharine C. Sadowski, 2025. "The Effect of the Minimum Wage on Childcare Establishments," Working Papers 25-53, Center for Economic Studies, U.S. Census Bureau.
    11. Christian Ragacs, 2003. "Mindestlöhne und Beschäftigung: Ein Überblick über die neuere empirische Literatur," Working Papers geewp25, Vienna University of Economics and Business Research Group: Growth and Employment in Europe: Sustainability and Competitiveness.
    12. Qianqian Yang & Nobuaki Hamaguchi, 2025. "Revisiting Minimum Wage: From Labor Economics to Spatial Economics," Discussion Paper Series DP2025-08, Research Institute for Economics & Business Administration, Kobe University.
    13. Laporšek, Suzana & Orazem, Peter F. & Vodopivec, Milan & Vodopivec, Matija, 2024. "Long-term responses to large minimum wage shocks: Subminimum and super-minimum workers in Slovenia," Economic Systems, Elsevier, vol. 48(4).
    14. Nicole Coomer & Walter Wessels, 2013. "The Effect of the Minimum Wage on Covered Teenage Employment," Journal of Labor Research, Springer, vol. 34(3), pages 253-280, September.
    15. Dale L. Belman & Paul Wolfson, 2010. "The Effect of Legislated Minimum Wage Increases on Employment and Hours: A Dynamic Analysis," LABOUR, CEIS, vol. 24(1), pages 1-25, March.
    16. Luca Colombo & Paola Labrecciosa & Luca Lambertini, 2008. "Are optimal punishments always optimal?," Working Paper series 01_08, Rimini Centre for Economic Analysis.
    17. 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.
    18. Rohlin, Shawn M., 2011. "State minimum wages and business location: Evidence from a refined border approach," Journal of Urban Economics, Elsevier, vol. 69(1), pages 103-117, January.
    19. Jose Caraballo†Cueto, 2016. "Is there a minimum wage biting in Puerto Rico? Updating the debate," Industrial Relations Journal, Wiley Blackwell, vol. 47(5-6), pages 513-529, November.
    20. Addison, John T. & Blackburn, McKinley L. & Cotti, Chad, 2008. "The Effect of Minimum Wages on Wages and Employment: County-Level Estimates for the United States," IZA Discussion Papers 3300, Institute of Labor Economics (IZA).

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