Minimum Wages and Labor Markets in the Twin Cities

Loukas Karabarbounis, Jeremy Lise and Anusha Nath

No 30239, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We present new evidence on the labor market effects of large and permanent minimum wage increases by examining the policy changes implemented by Minneapolis and announced by Saint Paul in 2018. Beginning with synthetic difference-in-differences methods, we find that the increase in the minimum wage substantially decreased employment in restaurants, retail, and health, even after accounting for potential confounding effects from the pandemic and civil unrest. Next, using variation in exposure to the minimum wage across establishments and workers within zip codes and industries of the Twin Cities, we find employment effects that are about half as large as those from the time series. We quantify an industry equilibrium model to rationalize our estimates and differentiate among competing economic mechanisms that determine how the minimum wage affects the labor market. Our model accounts quantitatively for the importance of reduced entry in generating a larger employment decline than implied by the cross-sectional estimates; for the employment decline from the announcement of a future minimum wage increase; and for the more negative employment effects of the minimum wage over time, relative to the size of the increase, and when the economy is in a recession.

JEL-codes: J08 J23 J38 (search for similar items in EconPapers)
Date: 2022-07
New Economics Papers: this item is included in nep-lma and nep-ure
Note: EFG LS
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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