Cross-Border Spillover Effects of State Increases in Minimum Wages

Abstract

Many studies that estimate employment effects of state increases in minimum wages do so by comparing employment developments between states where minimum wages increased and states where minimum wages did not change. Simple economic theories, however, indicate that employment developments in the latter “control” states might be “contaminated” by spillovers from neighboring “treatment” states. This is of particular interest in specifications that otherwise lead to estimates of substantial disemployment effects. In such cases, it is important to consider whether the results might be an artifact of spillover bias. This paper studies the spillover issue with county-level restaurant employment data from the Quarterly Census of Employment and Wages between 1990 and 2014. I find that the spillover effects are modest, and that accounting for them has little impact on estimated disemployment effects. While many other methodological issues remain to be resolved in the minimum wage literature, bias from spillover effects need not be one of them.