The Effect of Minimum Wages on Low-Wage Jobs: Evidence from the United States Using a Bunching Estimator

116 Pages Posted: 15 Jan 2019

See all articles by Doruk Cengiz

Doruk Cengiz

University of Massachusetts at Amherst - College of Social and Behavioral Sciences - Department of Economics

Arindrajit Dube

University of Massachusetts Amherst

Attila Lindner

University College London - Department of Economics

Ben Zipperer

University of Massachusetts Amherst

Date Written: January 2019

Abstract

We propose a novel method that infers the employment effect of a minimum wage increase by comparing the number of excess jobs paying at or slightly above the new minimum wage to the missing jobs paying below it. To implement our approach, we estimate the effect of the minimum wage on the frequency distribution of hourly wages using 138 prominent state-level minimum wage changes between 1979 and 2016. We find that the overall number of low-wage jobs remained essentially unchanged over five years following the increase. At the same time, the direct effect of the minimum wage on average earnings was amplified by modest wage spillovers at the bottom of the wage distribution. Our estimates by detailed demographic groups show that the lack of job loss is not explained by labor-labor substitution at the bottom of the wage distribution. We also find no evidence of disemployment when we consider higher levels of minimum wages. However, we do find some evidence of reduced employment in tradable sectors. In contrast to our bunching-based estimates, we show that some conventional studies can produce misleading inference due to spurious changes in employment higher up in the wage distribution.

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Suggested Citation

Cengiz, Doruk and Dube, Arindrajit and Lindner, Attila and Zipperer, Ben, The Effect of Minimum Wages on Low-Wage Jobs: Evidence from the United States Using a Bunching Estimator (January 2019). NBER Working Paper No. w25434, Available at SSRN: https://ssrn.com/abstract=3315238

Doruk Cengiz (Contact Author)

University of Massachusetts at Amherst - College of Social and Behavioral Sciences - Department of Economics ( email )

Amherst, MA 01003
United States

Arindrajit Dube

University of Massachusetts Amherst ( email )

Attila Lindner

University College London - Department of Economics ( email )

Drayton House
30 Gordon Street
London, WC1H 0AX
United Kingdom

Ben Zipperer

University of Massachusetts Amherst ( email )

Department of Operations and Information Managemen
Amherst, MA 01003
United States

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