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The Effect of the New Minimum Wage Law in a Low-Wage Labor Market

Lawrence Katz () and Alan Krueger

No 3655, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: After nearly a decade without change, legislation that affected the Federal minimum wage in two significant ways took effect on April 1, 1990: (1) the hourly minimum wage was increased from $3.35 to $3.80; and (2) employers were enabled to pay a subminimum wage to teenage workers for up to six months. This paper examines the effect of these changes in the minimum wage law in a low-wage labor market using data from a survey of 167 fast food restaurants in Texas. We draw three main conclusions. First, our survey results indicate that less than 2 percent of fast food restaurants have taken advantage of the youth subminimum, even though 73 percent of the sampled restaurants paid a starting wage of less than $3.80 before the new minimum wage took effect. Second, we find that a sizeable minority of fast food restaurants increased wages for workers by an amount exceeding that necessary to comply with the higher minimum wage. Third, the majority of fast food restaurants in Texas that were directly affected by the minimum wage increase did not report that they attempted to offset their mandated wage increase by cutting fringe benefits or reducing employment.

Date: 1991-03
Note: LS
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Published as Industrial Relations Research Association, Proceedings, 1991.
Published as Katz, Lawrence F. and Alan B. Krueger. "The Effect Of The Minimum Wage On The Fast-Food Industry," International Labor Relations Review, 1993, v46(1), 6-21.

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Working Paper: THE EFFECT OF THE NEW MINIMUM WAGE LAW IN A LOW-WAGE LABOR MARKET (1991)
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