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Who Pays for and Who Benefits from Minimum Wage Increases? Evidence from Israeli Tax Data on Business Owners and Workers

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  • Lev Drucker
  • Katya Mazirov
  • David Neumark

Abstract

A key goal of a higher minimum wage is income redistribution towards low-income families. Existing research on the minimum wage focuses on the impact on affected workers, but is silent on the incomes of the owners of businesses who pay for a higher minimum wage. Higher minimum wages will do more to redistribute income if the owners of businesses who pay the higher minimum are at the top of the income distribution, and conversely if minimum wage employers hare relatively low incomes, the redistributional effects are weakened. We study evidence on this question using a unique administrative dataset on the universe of tax records for Israel, in the period surrounding a large minimum wage increase. We find that the minimum wage hike reduced profits of companies, with minimum-wage intensive companies bearing the bulk of the cost and adjusting their workforces more aggressively, and profits declining more for lower-income business owners. Moreover, owners of businesses with higher shares of minimum-wage workers ranked at the bottom of the income distribution of business owners, and their incomes were comparable to those of mid-to-high level workers. In most cases, spouses of business owners earn less than the owners while spouses of minimum-wage workers earn more, further reducing the redistributive effect of the minimum wage increase.

Suggested Citation

  • Lev Drucker & Katya Mazirov & David Neumark, 2019. "Who Pays for and Who Benefits from Minimum Wage Increases? Evidence from Israeli Tax Data on Business Owners and Workers," NBER Working Papers 26571, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:26571
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    References listed on IDEAS

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    1. Arindrajit Dube, 2019. "Minimum Wages and the Distribution of Family Incomes," American Economic Journal: Applied Economics, American Economic Association, vol. 11(4), pages 268-304, October.
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    More about this item

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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