Minimum Wage Channels of Adjustment

Barry Hirsch, Bruce Kaufman and Tetyana Zelenska ()
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Tetyana Zelenska: Innovations for Poverty Action

No 6132, IZA Discussion Papers from IZA Network @ LISER

Abstract: The economic impact of the 2007-2009 increases in the federal minimum wage (MW) is analyzed using a sample of quick-service restaurants in Georgia and Alabama. Store-level biweekly payroll records for individual employees are used, allowing us to precisely measure the MW compliance cost for each restaurant. We examine a broad range of adjustment channels in addition to employment, including hours, prices, turnover, training, performance standards, and non-labor costs. Exploiting variation in the cost impact of the MW across restaurants, we find no significant effect of the MW increases on employment or hours over the three years. Cost increases were instead absorbed through other channels of adjustment, including higher prices, lower profit margins, wage compression, reduced turnover, and higher performance standards. These findings are compared with MW predictions from competitive, monopsony, and institutional/behavioral models; the latter appears to fit best in the short run.

Keywords: minimum wages; employment; labor market adjustments; labor market theories (search for similar items in EconPapers)
JEL-codes: J20 J30 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2011-11
New Economics Papers: this item is included in nep-lab and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (29)

Published - revised version published in: Industrial Relations, 2015, 54 (2), 188-239

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Journal Article: Minimum Wage Channels of Adjustment (2015)
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