Madam Yellen is right about minimum wage policies: evidence from millions of sole proprietors

Abstract

During her nomination hearing, Janet Yellen defended the benefits of a higher minimum wage (Question 66 and follow-up). This study analyzes the impact of minimum wage policies on the profitability of sole proprietors by using a dataset of 430 million reported net incomes with the IRS from 2004 to 2018. Three methods are used to examine the relationship between minimum wage increases and net income for sole proprietors: A panel regression framework that includes all counties, comparing contiguous border county-pairs, and a difference-in-differences approach. We find that minimum wage hikes are associated with a higher net income for sole proprietors, with estimated elasticity between 0.15 and 0.2.