How Do Minimum Wages Affect Nonemployer Businesses in the United States?

Ke Lyu and Frank Fossen
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Ke Lyu: Nevada State University

No 18101, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper investigates the impact of minimum wage increases on nonemployer business establishments in the United States. We develop a theoretical model of occupational choice and estimate effects using panel data from the Nonemployer Statistics (2001-2020). Our identification strategy compares contiguous counties across state borders. Results show that a $1 increase in the minimum wage reduces the number of nonemployers by 0.5%-0.9%, likely due to relatively more attractive wage jobs. The effect is smaller in counties with higher shares of minorities, females, and lower education, while the transportation sector expands due to the gig economy. Further analysis reveals that higher minimum wages discourage transitions from nonemployer to employer status and increase shifts from self-employment to wage work or unemployment, showing how this regulation shapes entrepreneurship dynamics.

Keywords: entrepreneurship; nonemployer businesses; minimum wages (search for similar items in EconPapers)
JEL-codes: J24 J38 L26 (search for similar items in EconPapers)
Date: 2025-08
New Economics Papers: this item is included in nep-ent, nep-inv and nep-lma
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