Do Minimum Wage Increases Lower the Probability that Low-Skilled Workers Will Receive Fringe Benefits?

This paper investigates the effect of minimum wages on the probability that low-skilled workers in the U.S. receive employer health insurance, retirement benefits, and sick leave. Using cross-state variation in state minimum wages to identify minimum wage effects, the paper finds that increases in minimum wages are associated with decreases in the probability that low-skilled workers are eligible for pensions and health insurance, at least at higher levels of the minimum wage. For example, a $0.50 increase in the minimum wage from its 1999 level is estimated to decrease pension eligibility of less educated workers by 6.8 points and their health insurance eligibility by 3.9 points. No effect or small increases in pension and health insurance eligibility are found when the real minimum wage is very low. The reductions in total compensation that occur with large increases in the minimum wage, or even with smaller increases at higher levels of the minimum wage, lower the size of the employment response that would be expected in response to a given increase in the minimum wage. Such reductions clearly also have an impact on worker well-being that offsets, at least to some extent, the gains that individual workers may realize as a result of an increase in the minimum wage.