Minimum Wage Channels of Adjustment

48 Pages Posted: 28 Nov 2011

See all articles by Barry T. Hirsch

Barry T. Hirsch

IZA Institute of Labor Economics; Georgia State University

Bruce Evan Kaufman

Georgia State University - Department of Economics

Tetyana Zelenska

Innovations for Poverty Action

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The economic impact of the 2007-2009 increases in the federal minimum wage (MW) is analyzed using a sample of quick-service restaurants in Georgia and Alabama. Store-level biweekly payroll records for individual employees are used, allowing us to precisely measure the MW compliance cost for each restaurant. We examine a broad range of adjustment channels in addition to employment, including hours, prices, turnover, training, performance standards, and non-labor costs. Exploiting variation in the cost impact of the MW across restaurants, we find no significant effect of the MW increases on employment or hours over the three years. Cost increases were instead absorbed through other channels of adjustment, including higher prices, lower profit margins, wage compression, reduced turnover, and higher performance standards. These findings are compared with MW predictions from competitive, monopsony, and institutional/behavioral models; the latter appears to fit best in the short run.

Keywords: minimum wages, employment, labor market adjustments, labor market theories

JEL Classification: J20, J30

Suggested Citation

Hirsch, Barry T. and Hirsch, Barry T. and Kaufman, Bruce Evan and Zelenska, Tetyana, Minimum Wage Channels of Adjustment. IZA Discussion Paper No. 6132, Available at SSRN: or

Barry T. Hirsch (Contact Author)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072

Georgia State University ( email )

Department of Economics
Andrew Young School of Policy Studies
Atlanta, GA 30302-3992
United States
404-413-0880 (Phone)
404-413-0145 (Fax)


Bruce Evan Kaufman

Georgia State University - Department of Economics ( email )

P.O. Box 3992
Atlanta, GA 30302-3992
United States
404-651-2922 (Phone)
404-651-3299 (Fax)

Tetyana Zelenska

Innovations for Poverty Action ( email )

1731 Connecticut Ave, 4th floor
Washington, DC 20009
United States

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