The minimum wage and the Great Recession: Evidence of effects on the employment and income trajectories of low-skilled workers

Abstract

We estimate the minimum wage's effects on low-skilled individuals' employment and income trajectories following the Great Recession. Our approach exploits two dimensions of the data we analyze. First, we compare individuals in states that were fully bound by the 2007 to 2009 increases in the federal minimum wage to individuals in states that were not. Second, we use variation in the minimum wage's bite across skill groups to separate our samples into “target” and “within-state control” groups. Using the 2008 panel of the Survey of Income and Program Participation, we find that binding minimum wage increases had significant, negative effects on the employment and income growth of targeted workers. Although there are important limitations to our research designs, our estimates are robust to adopting a range of alternative strategies to construct our analysis samples and to account for variation in the Great Recession's underlying severity across states. In aggregate, our estimates suggest that this period's minimum wage increases reduced aggregate employment rates by at least half of a percentage point in states that were bound by the federal minimum wage increases. Because our estimates are large relative to what one would infer from past research, we emphasize the relevance of the historical episode we analyze.