COMP NEWS – A new study out of the Institute For Research On Labor And Employment has indicated substantial wage increases for workers rarely lead to a reduction in jobs, contrary to many popular beliefs.

We present the first causal analysis of recent large minimum wage increases, focusing on 47 larger U.S. counties that reached $15 or more by 2022q1. Using stacked county-level synthetic control estimators, we find substantial pay growth, no disemployment effects and reduced wage inequality. Our novel procedure ameliorates pandemic-related bias. We pose and address a monopsony puzzle: Researchers often invoke monopsony to explain absent negative employment effects, yet the model generally predicts positive employment effects. When we reduce selection and attenuation biases—by excluding areas with local minimum wages and high-wage counties—we find large, significant positive employment effects.

The study indicates that, contrary to popular beliefs, large wage gains ($15 or more) result in increased earnings without causing negative employment effects. The study was primarily performed among fast food workers in California and New York.

Our analysis of $15 and higher minimum wage policies examines the effects of nominal minimum wage levels and percentage increases that are considerably higher than any studied in the modern U.S. research literature. Our main sample consists of fast food workers in 47 counties—25 in California and 22 in New York. These counties are representative of the U.S as a whole: the distribution of average county wages in 42 of these counties lies uniformly between the 10th and 90th percentiles of all U.S. counties, with only 5 outliers above the 90th percentile. This pattern implies our results are generalizable to jurisdictions across the U.S.

 

In markets where employers possess wage-setting power, the monopsony model predicts that small or moderate minimum wage increases will increase employment, while very large minimum wage increases could lead to decreased employment. Our positive employment effects suggest that the level at which disemployment effects begin to occur lies above $15.

 

…our paper demonstrates that the rapid growth of minimum wages to high levels in California and New York resulted in increased earnings without causing negative employment effects. Indeed, our evidence suggests that these minimum wage increases resulted in employment gains. We thereby extend the minimum wage literature and add to the burgeoning literature that finds evidence of employer power in low-wage labor markets

To read the Institute For Research On Labor And Employment’s study, click here.

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