The Effect of the New Minimum Wage Law in a Low-Wage Labor Market

21 Pages Posted: 1 Aug 2007 Last revised: 29 Jun 2010

See all articles by Lawrence F. Katz

Lawrence F. Katz

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Alan B. Krueger

Princeton University - Industrial Relations Section; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Date Written: March 1991

Abstract

After nearly a decade without change, legislation that affected the Federal minimum wage in two significant ways took effect on April 1, 1990: (1) the hourly minimum wage was increased from $3.35 to $3.80; and (2) employers were enabled to pay a subminimum wage to teenage workers for up to six months. This paper examines the effect of these changes in the minimum wage law in a low-wage labor market using data from a survey of 167 fast food restaurants in Texas. We draw three main conclusions. First, our survey results indicate that less than 2 percent of fast food restaurants have taken advantage of the youth subminimum, even though 73 percent of the sampled restaurants paid a starting wage of less than $3.80 before the new minimum wage took effect. Second, we find that a sizeable minority of fast food restaurants increased wages for workers by an amount exceeding that necessary to comply with the higher minimum wage. Third, the majority of fast food restaurants in Texas that were directly affected by the minimum wage increase did not report that they attempted to offset their mandated wage increase by cutting fringe benefits or reducing employment.

Suggested Citation

Katz, Lawrence F. and Krueger, Alan B., The Effect of the New Minimum Wage Law in a Low-Wage Labor Market (March 1991). NBER Working Paper No. w3655. Available at SSRN: https://ssrn.com/abstract=499324

Lawrence F. Katz (Contact Author)

Harvard University - Department of Economics ( email )

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HOME PAGE: http://www.economics.harvard.edu/faculty/katz/katz

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Alan B. Krueger

Princeton University - Industrial Relations Section ( email )

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National Bureau of Economic Research (NBER)

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IZA Institute of Labor Economics

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