Research

High Minimum Wages and the Monopsony Explanations (with J. Wiltshire, C. McPherson and M. Reich)

Forthcoming in the Journal of Labor Economics

We present the first causal analysis of a seven-year run-up of minimum wages to $15. Using a novel stacked county-level synthetic control estimator and data on fast-food restaurants, we find substantial pay growth and no disemployment. Our results hold among lower-wage counties and counties without local minimum wages. Minimum wage increases reduce separation rates and raise wages faster than prices at McDonald’s stores; both findings imply a monopsonistic labor market with declining rents. In the tight post-pandemic labor market, when labor supply becomes more elastic, we find positive employment effects. These become larger and statistically significant after addressing pandemic-response confounds.

Sectoral Wage-Setting in California (with M. Reich)

IRLE Working Paper No. 104-24

On April 1, 2024, California implemented its first sectoral wage policy, setting a $20 floor on hourly pay for workers in the larger fast food restaurant chains and snack and nonalcoholic beverages chains. The $20 standard, the highest in the U.S., applies to an industry with about 750,000 workers. About 90 percent of the covered non-managerial workers were paid less than $20 before the policy, more than twice as much as in previous policies. By these metrics, the new wage standard lies well outside the range of previous policies that have been studied in the minimum wage research literature. To fill the knowledge gap, we use novel data on wages and prices at individual restaurants as well as BLS industry employment data and deploy difference-in-differences event designs to identify the sectoral policy’s causal effects on wages, employment, prices and price passthroughs. Our restaurant wage data come from 35,680 job posts on Glassdoor, an internet job site. We obtained price data by scraping menus from 1,585 California restaurants and 1,694 restaurants in states without a minimum wage increase since 2009. We find that the policy increased average hourly pay by a remarkable 18 percent, and yet it did not reduce employment.

The policy increased prices about 3.7 percent, or about 15 cents on a $4 hamburger (on a one-time basis). About 62 percent of the increased costs were passed on to consumers in higher prices, suggesting that restaurant profit margins, which were above competitive levels before the policy, absorbed a substantial share of the cost increase. Since demand for fast food is highly price-inelastic, the price increases likely raised restaurant revenue. Franchise owners pay a fixed share of their revenue in royalty fees to their chains’ parent companies. The sectoral wage standard thus benefits the parent companies.

Restaurant Employment, Minimum Wages, and Border Discontinuities  (with A. Dube, M. Reich, and  A. Bhatt)

NBER Working Paper No. 32902 

Dube, Lester and Reich (2010, DLR), using state minimum wage discontinuities across bordering counties and Quarterly Census of Employment and Wages data, did not detect negative minimum wage effects on restaurant employment. Jha, Neumark and Rodriguez-Lopez (2024, JNR) claim that looking within multi-state commuting zones and using County Business Patterns data provides a superior approach to DLR and does find disemployment effects. We show that JNR’s results are confounded by parallel trends violations in the 1990s, when minimum wage events were rare and small in magnitude; JNR’s outmoded two-way-fixed-effects model amplifies the biases introduced by these violations. Our estimates using their specifications and data on only post-2000 data fail to detect disemployment effects. The same results hold using QCEW and ACS datasets. Our preferred event study difference-in-differences approach, which analyzes only data that fall clearly within an event’s window, also does not detect negative employment effects. This result holds whether we compare across all states, look within commuting zones or within border county pairs, and regardless of the data set or time period.

Minimum Piece Rates and Congestion Pricing: Effects on Drivers, Firms and Passengers (with Dmitri Koustas, Michael Reich, James Parrott, and Xingxing Yang)

Workplace Injuries in Low-Wage California Industries (with Michael Reich)

Minimum Wage And Demand For Soft Skills

Commuting Response of Low-Wage Workers to Changes In State Minimum Wage Policies