Who Benefits from a Minimum Wage Increase?

Upjohn Institute Working Paper No. 15-224

35 Pages Posted: 7 Apr 2015

See all articles by John Lopresti

John Lopresti

College of William and Mary - Department of Economics

Kevin J. Mumford

Purdue University

Date Written: March 6, 2015

Abstract

This paper addresses the question of how a minimum wage increase affects the wages of low-wage workers. Most studies assume that there is a simple mechanical increase in the wage for workers earning a wage between the old and the new minimum wage, with some studies allowing for spillovers to workers with wages just above this range. Rather than assume that the wages of these workers would have remained constant, this paper estimates how a minimum wage increase impacts a low-wage worker’s wage relative to the wage the worker would have if there had been no minimum wage increase. The method allows for the effect to depend not only on the initial wage of the worker, but also nonlinearly on the size of the minimum wage increase. Using Current Population Survey data from 2005 to 2008, a period with a large number of U.S. state-level minimum wage increases, this paper finds that low-wage workers who experience a small increase in the minimum wage tend to have lower wage growth than if there had been no minimum wage increase. A large increase to the minimum wage increases the wages of not only those workers who previously earned less than the new minimum wage, but also spill over to workers with moderately higher wages. Finally, this paper finds little evidence of heterogeneity in the effect by age, gender, income, and race.

Keywords: Wage Effects, Minimum Wage

JEL Classification: J31, J38

Suggested Citation

Lopresti, John and Mumford, Kevin J., Who Benefits from a Minimum Wage Increase? (March 6, 2015). Upjohn Institute Working Paper No. 15-224, Available at SSRN: https://ssrn.com/abstract=2590346 or http://dx.doi.org/10.2139/ssrn.2590346

John Lopresti (Contact Author)

College of William and Mary - Department of Economics ( email )

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Williamsburg, VA 23185
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HOME PAGE: http://wmpeople.wm.edu/site/page/jwlopresti/home

Kevin J. Mumford

Purdue University ( email )

West Lafayette, IN 47907-1310
United States
7654966773 (Phone)
7654967434 (Fax)

HOME PAGE: http://www.mgmt.purdue.edu/faculty/kjmumfor/home.asp

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