The Effect of Minimum Wages on Labour Market Outcomes: County‐Level Estimates from the Restaurant‐and‐Bar Sector

Abstract

We use US county‐level data on employment and earnings in the restaurant‐and‐bar sector to evaluate the impact of minimum‐wage changes in low‐wage labour markets. Our estimated models are consistent with a simple competitive model in which supply‐and‐demand factors affect both the equilibrium outcome and the probability of the minimum wage being binding. Our evidence does not suggest that minimum wages reduce employment once controls for trends in county‐level sectoral employment are incorporated. Rather, employment appears to exhibit an independent downward trend in states that have increased their minimum wages relative to states that have not, thereby predisposing estimates towards reporting negative outcomes.

Minimum Wage Shocks, Employment Flows, and Labor Market Frictions

“…However, we point out below that in all of these cases, the effect of a policy like the minimum wage on employment stocks and flows is through its effect on labor market tightness, ✓ ⇤ . This result is a consequence of the flow balance restrictions that underlie the employment and separation rates in equations (5) and (6).…”

“…Equation (6) shows that if we observe the relative transition rates to another job as opposed to unemployment, we can back out the value of e , or equivalently . This will be useful when we calibrate the model below.…”

The Spending and Debt Response to Minimum Wage Hikes

“…10 In contrast, there is 9 A handful of studies have estimated similar income equations. Recent examples include Draca, Machin, and Van Reenen (2011);Addison, Blackburn, and Cotti (2008);andWascher (2004, 2005). Each of these studies finds evidence that minimum wage hikes increase household income in the short run.…”

Minimum Wages, Labor Market Institutions, and Female Employment: A Cross-Country Analysis

“…When the minimum wage is binding, the demand curve determines the level of employment for the given minimum wage; otherwise, equilibrium employment is a function of both demand and supply. We do not model the determinants of the probability that the minimum wage will bind (see, inter al., Neumark and Wascher, 2002;Addison et al, 2011) but simply attempt to capture its bite here by expressing the minimum wage as a ratio of the median wage. 9 (As the latter argument is only available for all workers, we supplement it with a measure of the gender wage gap interacted with the minimum wage.…”