Minimum Wage Increases Research Articles

Should We Abolish The Minimum Wage?

The discussion on minimum wage is a long-standing debate in economics. The fundamental objective of a NMW is to assist individuals who are remunerated at a low wage that yields below average living standards. To mitigate poverty, the government enacts laws that compel companies to compensate their employees at a wage that surpasses the equilibrium free market price for labour. On the other hand, an increase in the national minimum wage may also lead to an increase in the social unemployment rate. This essay will examine and critically evaluate the merits and drawbacks of NMW policies, and conclude that governments should not abolish the minimum wage altogether.

Employment effects of the minimum wage: evidence from the Spanish 2019 reform

We examine the employment effects of the 2019 minimum wage increase in Spain on individual probabilities of losing employment status (extensive margin) and lowering work intensity (intensive margin). To do so, we use variation of workers’ exposure to the reform by comparing monthly employment transitions into unemployment and reductions in number of working hours between employees earning less than the minimum wage (treatment group) and those earning more and that should therefore be unaffected by the reform (control group). We find that the new minimum wage significantly increased the probability of experiencing unemployment (1.7 percentage points) and a reduction in work intensity (0.9 percentage points) for treated workers after one year. Our results suggest substantial heterogeneity by age, prior work intensity, economic sector and geographical region of employees affected by the reform.

Does raising the minimum wage matter to firms' energy transition?

Environmental issues are closely related to the economic development of human society, and reducing environmental pollution during production is of great significance for environmental protection. This paper utilizes data from Chinese industrial enterprises (2001–2010), and establishes a fixed effects model to examine whether minimum wage standards are important in reducing non-clean energy consumption by enterprises. The results indicate that an increase in the monthly minimum wage leads to a significant reduction in coal consumption by firms, while the change in the hourly minimum wage do not exert a statistically significant influence on coal consumption by firms. The above empirical results remain robust after conducting a series of endogeneity tests. The mechanism test shows that innovation and exports serve as mediating variables between the minimum wage and coal consumption. Specifically, raising the minimum wage can incentivize enterprises to innovate in production and expand their exports, resulting in a decrease in the consumption of non-clean energy. Finally, through the heterogeneity test, we observe that increases in the minimum wage have varying effects on coal consumption among firms with different numbers of employees and different ages. Based on the research findings of this paper, we propose that the government should comprehensively consider and improve relevant systems, formulate scientifically-based minimum wage standards, take into account both workers' rights and interests as well as enterprises' profits, actively promote energy transformation in enterprises, and ultimately achieve long-term development of the social environment.

What we pay in the shadows: Labor tax evasion, minimum wage hike and employment

The interactions between minimum wage policy and tax evasion remain largely unknown. We study the firm-level employment effects of a large and biting minimum wage increase in the context of widespread wage underreporting. We apply machine learning to classify firms as either tax-compliant or tax-evading. We then show that firms engaged in labor tax evasion are insensitive to the minimum wage shock. Our results indicate that these firms use wage underreporting as an adjustment margin, converting part of their formerly undeclared cash payments into official wages. Increasing the minimum wage improves tax enforcement, but comes at the cost of negative employment consequences for compliant firms.

Populist party-producer group alliances and divergent developmentalist politics of minimum wages in Poland and Hungary

In the advanced peripheral economies of East-Central Europe, right-wing populist parties have increasingly politicized the dualism between larger, export-competitive foreign-owned enterprises and smaller, inward-oriented and less productive domestically owned firms. By focusing on the two most-similar cases of right-wing populist governments in the region—namely, Hungary and Poland, this paper documents a striking attempt by Poland’s Law and Justice party to use increases in the minimum wage and social security contributions as a developmentalist tool that should force domestically owned firms to achieve greater efficiency and technological upgrading. In sharp contrast, Hungary’s Fidesz party has systematically compensated minimum wage increases with cuts in employer social contributions and has refrained from assigning developmentalist aims to labor cost increases. Both parties have cultivated a cross-class electoral base and have faced electoral trade-offs in emphasizing minimum wage increases. Yet we argue—and show through a comparative historical analysis—that variation in their policy approaches stems from their distinct, electorally motivated, alliances with influential producer groups and the distinct policy quid pro quos they have struck with those groups, namely, organized labor for Law and Justice and organized business for Fidesz.

Do minimum wage laws affect employer-sponsored insurance provision?

Employers may respond to minimum wage increases by adjusting their health benefits. We examine the impact of state minimum wage increases on employer health benefit offerings using the 2002–2020 Medical Expenditure Panel Survey – Insurance/Employer Component data. Our primary regression specifications are difference-in-differences models that estimate the relationship between within-state changes in employer-sponsored insurance and minimum wage laws over time. We find that a $1 increase in minimum wages is associated with a 0.92 percentage point (p.p.) decrease in the percentage of employers offering health insurance, largely driven by small employers and employers with a greater share of low-wage employees. A $1 increase is also associated with a 1.83 p.p. increase in the prevalence of plans with a deductible requirement, but we do not find consistent evidence that other benefit characteristics are affected. We find no consequent change in uninsurance, likely explained by an increase in Medicaid enrollment.

Consequences of a minimum wage increase in a migrant-sending country

A mandated minimum wage supports low-wage workers at the expense of domestic employment and overall welfare in a closed economy. This, however, does not occur in an economy with open labor markets like the Philippines. Our general equilibrium simulations demonstrate that a minimum wage increase would be welfare-improving thanks to remittances earned by, especially, unskilled workers who lose jobs and migrate abroad. Migration would cause currency appreciation and less domestic labor supply which make exports and domestic production weaker, especially in manufacturing, like the Dutch disease. Among four household groups, welfare gains would accrue largely to both the richest and poorest household groups; middle-income groups would gain smaller. Our neutral inequality finding does not imply equal gains by all household groups but is brought by the poorest household group being able to keep up with the second and third-richest household groups, while trailing behind the richest household group.

Using payroll taxes as a redistribution tool

Payroll taxes are usually designed to fund social insurance and not to contribute directly to redistribution. Over the last fifty years, France has modified dramatically the schedule of payroll taxation, turning it into the most progressive part of its tax system. Using administrative data and detailed microsimulation model of labor income taxation, we show that pretax wage (or labor cost) inequality measured by the P90/P10 ratio has increased by 15.4%, while net wage inequality has actually decreased by 18.9% over the 1967–2019 period. This reduction in wage inequality can be largely attributed to the policy mix of reductions of employer payroll taxes for low wage earners joined with minimum wage increases. We discuss whether this unusual French experiment carries lessons for other countries.

The impact of agricultural minimum wages on worker flows in South Africa

AbstractThis paper is the first to provide estimates of how minimum wages affect worker flows and employment growth rates in an employment scarce developing country context. We investigate the effects of a large, exogenous increase in agricultural minimum wages in South Africa. We find that changes occurred primarily among non‐seasonal workers. Non‐seasonal agricultural employment growth decreased in the initial periods after the minimum wage hike. This was mainly driven by slower rates of entry. The effect on the rate of entry decreases over time. While farms also responded by shedding non‐seasonal workers at higher rates, this negative effect was limited to 1 year directly after the minimum wage hike. Employment growth recovers 4 years after the policy shock, indicating that firms adjusted relatively quickly despite the large legislated minimum wage increase. Seasonal employment growth and rates of entry and exit of seasonal workers were for the most part unaffected. Descriptive statistics, however, suggest a slight compositional change among seasonal workers: Farms replaced the worst paid seasonal workers with other low‐income workers who were slightly better paid and presumably more productive.

Minimum wage and household economic vulnerability: Evidence from China

Epidemic shocks have brought the issue of household economic vulnerability to the fore. Furthermore, an urgent need to establish a long-term mechanism to particularly help low-income groups cope with risk shocks, and minimum wage policies should be able to play an important role. Therefore, based on CHFS panel tracking data in 2015, 2017, and 2019, the impact of the minimum wage increase on household economic vulnerability and its mechanism of action is empirically tested. We found that for every 10% increase in the minimum wage, the probability of economic vulnerability occurring in the household economy decreases by 2.81 percentage points because the minimum wage increase raises the household income level of low-income groups, improves the health status of household members, and increase their commercial health insurance, emergency savings and financial capital stock. This impact is more significant for rural households, households in areas with high marketization levels, better rule of law levels and with low education levels. The article’s research helps to comprehensively analyse the welfare effects of minimum wage policies and expand the policy options for helping low-income groups cope with risk shocks.

Minimum Wage Employment Effects and Labour Market Concentration

Abstract This paper shows that more highly concentrated labour markets experience more positive employment effects of the minimum wage. In the most concentrated labour markets, employment rises following a minimum wage increase. The paper establishes its main findings by studying the effects of local minimum wage increases on a key low-wage retail sector, and using data on labour market concentration that covers the entirety of the U.S. with fine spatial variation at the occupation level. The results carry over to the fast-food sector and the entire low-wage labour market and are robust to using proxies of labour market concentration available for a broader range of industries, such as the number of establishments and population density. A model of oligopsonistic competition can explain these effects: there is more room to increase wages in high-concentration areas where wages tend to be further below marginal productivity. These findings provide evidence supporting monopsonistic wage setting as an explanation for the near-zero minimum wage employment effect documented in prior work.

Impact of the minimum wage increase on smoking behaviour: A quasi-experimental study in South Korea

BackgroundWhile there's a growing body of research studying the health effects of minimum wage increases, evidence of its impact on smoking is inconsistent. Using nationally representative statistics, our quasi-experimental study examines the impacts of South Korea's 2018 minimum wage increase on smoking patterns, offering a distinctive context due to the significant wage growth and the country's permissive smoking culture. MethodsUsing the Korean Welfare Panel Study (KOWEPS), we conducted a difference-in-differences analysis using two-way fixed effect (TWFE) and Callaway and Sant'Anna Difference-in-differences (CSDID) methods. The study sample (n = 3494) included individuals aged 19–64 at baseline in 2016, and employed in the entire study period (2016–2019). ResultsThe model results suggest a roughly 2% increase in the probability of current smoking with an insignificant impact on average daily cigarette consumption following the 2018 minimum wage increase in Korea. These effects were most pronounced among men and age groups (45–64). We also found policy effects on those earning up to 150% of the minimum wage. ConclusionIn a culture with widespread acceptance of smoking, an exogenous increase in disposable income due to elevated minimum wage might enhance vulnerability to societal pressure to smoke. Although TWFE and CSDID both suggest the same overall trend, the latter approach allows a more detailed examination by acknowledging heterogeneous treatment effects. These results could guide policymakers to contemplate the potential for increased smoking resulting from minimum wage hikes in societies where tobacco use is common, and accordingly strategize anti-smoking public health initiatives.

Association of Increasing the Minimum Wage in the US With Experiences of Maternal Stressful Life Events

Exposure to stressful life events (SLEs) before and during pregnancy is associated with adverse health for pregnant people and their children. Minimum wage policies have the potential to reduce exposure to SLEs among socioeconomically disadvantaged pregnant people. To examine the association of increasing the minimum wage with experience of maternal SLEs. This repeated cross-sectional study included 199 308 individuals who gave birth between January 1, 2004, and December 31, 2015, in 39 states that participated in at least 2 years of the Pregnancy Risk Assessment Monitoring Survey between 2004 and 2015. Statistical analysis was performed from September 1, 2022, to January 6, 2023. The mean minimum wage in the 2 years prior to the month and year of delivery in an individual's state of residence. The main outcomes were number of financial, partner-related, traumatic, and total SLEs in the 12 months before delivery. Individual-level covariates included age, race and ethnicity, marital status, parity, educational level, and birth month. State-level covariates included unemployment, gross state product, uninsurance, poverty, state income supports, political affiliation of governor, and Medicaid eligibility levels. A 2-way fixed-effects analysis was conducted, adjusting for individual and state-level covariates and state-specific time trends. Of the 199 308 women (mean [SD] age at delivery, 25.7 [6.1] years) in the study, 1.4% were American Indian or Alaska Native, 2.5% were Asian or Pacific Islander, 27.2% were Hispanic, 17.6% were non-Hispanic Black, and 48.8% were non-Hispanic White. A $1 increase in the minimum wage was associated with a reduction in total SLEs (-0.060; 95% CI, -0.095 to -0.024), financial SLEs (-0.032; 95% CI, -0.056 to -0.007), and partner-related SLEs (-0.019; 95% CI, -0.036 to -0.003). When stratifying by race and ethnicity, minimum wage increases were associated with larger reductions in total SLEs for Hispanic women (-0.125; 95% CI, -0.242 to -0.009). In this repeated cross-sectional study of women with a high school education or less across 39 states, an increase in the state-level minimum wage was associated with reductions in experiences of maternal SLEs. Findings support the potential of increasing the minimum wage as a policy for improving maternal well-being among socioeconomically disadvantaged pregnant people. These findings have relevance for current policy debates regarding the minimum wage as a tool for improving population health.

Effects of the minimum wage on the nonprofit sector

Abstract The nonprofit sector’s ability to absorb increases in labor costs differs from the private sector in a number of ways. We analyse how nonprofits are affected by changes in the minimum wage utilizing data from the Bureau of Labor Statistics and the Internal Revenue Service, linked to state minimum wages. We examine changes in reported employment and volunteering, as well as other financial statements such as revenues and expenses. The results from both datasets show a negative impact on employment for states with large statutory minimum wage increases. We observe some evidence for a reduction in the number of nonprofit establishments, fundraising expenses, and revenues from contributions.

Evidence of the Unintended Labor Scheduling Implications of the Minimum Wage

Problem definition: The effect of the minimum wage is an important yet controversial topic that has received attention for decades. Our study is the first to take an operational lens and empirically study the impact of the minimum wage on firms’ scheduling practices. Methodology/results: Using a highly granular data set from a chain of fashion retail stores, we estimate that a $1 increase in the minimum wage, although having a negligible impact on the total labor hours used by the stores, leads to a 27.7% increase in the number of workers scheduled per week, but a 19.4% reduction in weekly hours per worker. For an average store in California, these changes translate into four extra workers and five fewer hours per worker per week. Such scheduling adjustment not only reduces the total wage compensation per worker but also reduces workers’ eligibility for benefits. We also show that the minimum wage increase reduces the consistency of weekly and daily schedules for workers. For example, the absolute (relative) deviation in weekly hours worked by each worker increases by up to 32.9% (6.6%) and by up to 9.7% (2.1%) in daily hours, as the minimum wage increases by $1. Managerial implications: Our study empirically identifies and highlights a new operational mechanism through which increasing the minimum wage may negatively impact worker welfare. Our further analysis suggests that the combination of the reduced hours, lower eligibility for benefits, and less consistent schedules (that resulted from the minimum wage increase) may substantially hurt worker welfare, even when the overall employment at the stores stay unchanged. By better understanding the intrinsic tradeoff of firms’ scheduling decisions, policy makers can better design minimum wage policies that will truly benefit workers. Supplemental Material: The online appendix is available at https://doi.org/10.1287/msom.2023.1212 .

Minimum Wage Hikes and Technology Adoption: Evidence from U.S. Establishments

Abstract This article studies the effects of state minimum wage increase on information technology (IT) adoption at the establishment level in the United States. Our results show that treatment establishments on average allocate between $10,328 and $66,808 more per year to their IT budgets during the first 3 years after experiencing significant state minimum wage increases. Additional evidence shows that state minimum wage increases on average lead to an economically small decrease in employment. The estimated employment effect is larger for establishments that have more incentives to automate labor. Our results suggest that establishments adopt technology to countervail increased labor costs.

The effects of international scrutiny on manufacturing workers: Evidence from the Rana Plaza collapse in Bangladesh

After the tragic factory collapse of Rana Plaza in 2013, both the direct reforms and indirect responses of retailers have plausibly affected workers in the Ready Made Garment (RMG) sector in Bangladesh. These responses included a minimum wage increase, high profile but voluntary audits, and an increased reluctance to subcontract to smaller factories. This paper estimates the net impact of these responses using six rounds of the Labor Force Survey and a triple difference approach that compares garment workers to non-garment workers, in districts containing the vast majority of export garment factories versus other districts, pre versus post Rana Plaza. As intended by the reforms, we find that increased international scrutiny improved working conditions by 0.80 standard deviations. In contrast with what the theory of compensating differentials would suggest, we do not find that workers’ wages were negatively impacted: instead, the post-Rana Plaza responses increased wages by about 10%.

The effect of minimum wage increases on inflation

The wage level that employers cannot legally go below by setting a floor limit on wages is called the "minimum wage". In other words, the minimum wage is usually the lowest wage determined to meet the basic needs of workers. This wage is set to raise the living standards of workers and to reduce poverty. As a result of the increases in food prices in international markets in 2021 and especially in 2022, a food crisis emerged in the world economy in 2022. While the effects of the COVID-19 pandemic were overcome in 2021, the prices increased as a result of increased demand, on the other hand, at the beginning of 2022, the Russia-Ukraine tension triggered the food crisis while pushing food prices up. While rising prices affected fixed incomes the most, it became necessary to increase the minimum wage. Increasing the minimum wage encourages consumption by reducing poverty and increasing fixed income (workers) well-being. The increase in the minimum wage encourages consumption by reducing poverty and increases the welfare of the fixed income (workers), and on the one hand, increases the costs of the producers and leads to a decrease in production and unemployment. While increases can help improve workers' living standards, they can also have negative effects, such as reducing worker numbers or increasing costs for some businesses. The main purpose of this research is to examine that while increasing the minimum wage in the inflationary period is inevitable, it will again increase the general level of prices and trigger inflation.

State Minimum Wage Increases As a Potential Policy Lever to Reduce Black-White Disparities in Hypertension.

Black adults are disproportionately burdened by hypertension. Income inequality is associated with elevated risk of hypertension. Minimum wage increases have been explored as a potential policy lever to address the disparate impact of hypertension on this population. However, these increases may have no significant impact on health among Black adults due to structural racism and "diminished gain" of health effects from socioeconomic resources. This study assesses the relationship between state minimum wage increases and Black-White disparities in hypertension. We merged state-level minimum wage data with survey data from the Behavioral Risk Factor Surveillance System (2001-2019). Odd survey years included questions about hypertension. Separate difference-in-difference models estimated the odds of hypertension among Black and White adults in states with and without minimum wage increases. Difference-in-difference-in-difference models estimated the impact of minimum wage increases on hypertension among Black adults relative to White adults. As state wage limits increase, the odds of hypertension significantly decreased among Black adults overall. This relationship is largely driven by the impact of these policies on Black women. However, the Black-White disparity in hypertension worsened as state minimum wage limits increased, and the magnitude of this disparity was larger among women. States having a minimum wage above the federal wage limit are not sufficient to combat structural racism and reduce the disparities in hypertension among Black adults. Rather, future research should explore livable wages as a policy lever to reduce disparities in hypertension among Black adults.

Minimum wage effects on firms’ R&D investment: Evidence from China

This study examines the effect of minimum wage increases on firms' R&D expenditure in China. We find that an increase in the minimum wage significantly increases firms’ R&D expenditure. This positive effect is stronger for labor-intensive firms, non-state-owned firms, and firms with fewer financing constraints and costs. To explore the underlying mechanism, we find that an increase in the minimum wage produces a factor substitution effect and a competitive pressure effect, and also mitigates the negative impact of agency problems and managerial myopia. Our study enriches the literature on economic consequences of a minimum wage and factors influencing firm innovation.