Minimum Wage Channels of Adjustment

48 Pages Posted: 2 Dec 2011

See all articles by Barry T. Hirsch

Barry T. Hirsch

Georgia State University; IZA Institute of Labor Economics

Bruce Evan Kaufman

Georgia State University - Department of Economics

Tetyana Zelenska

Innovations for Poverty Action

Multiple version iconThere are 3 versions of this paper

Date Written: November 1, 2011

Abstract

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 bi-weekly 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

Suggested Citation

Hirsch, Barry T. and Kaufman, Bruce Evan and Zelenska, Tetyana, Minimum Wage Channels of Adjustment (November 1, 2011). Andrew Young School of Policy Studies Research Paper Series No. 11-34, Available at SSRN: https://ssrn.com/abstract=1967602 or http://dx.doi.org/10.2139/ssrn.1967602

Barry T. Hirsch (Contact Author)

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)

HOME PAGE: http://unionstats.gsu.edu/bhirsch

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
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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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