When the minimum wage really bites hard: The negative spillover effect on high-skilled workers

Terry Gregory and Ulrich Zierahn-Weilage

Journal of Public Economics, 2022, vol. 206, issue C

Abstract: Minimum wage levels are rising around the globe. To shed more light on the possible unintended side effects of higher wage floors, we study the impact of a minimum wage introduction on wages and employment in a quasi-experimental setting where the minimum wage is set extraordinarily high during an economic downturn. We identify treatment effects along different wage and skill groups and find positive wage and employment spillover effects for medium-skilled workers with salaries just above the minimum wage. More striking, we find negative wage and employment effects for high-skilled workers who are further up the wage distribution, followed by reduced returns to skills and industry skill supply. We explain these adjustments with a substitution-scale model that predicts negative spillover effects whenever labor-labor substitutions toward high-skilled workers are overcompensated by an overall decline in industry employment. Even though we focus on a specialized industry, we lay out the general conditions under which such unfavorable adjustments may occur in other contexts.

Keywords: Minimum wages; Wage effects; Spillover effects; Returns to skills; Unconditional quantile regression; Scale effect; Substitution effect; Skill supply; Labor-labor substitution (search for similar items in EconPapers)
JEL-codes: C21 J23 J24 J31 J38 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:206:y:2022:i:c:s0047272721002188

DOI: 10.1016/j.jpubeco.2021.104582

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