The Minimum Wage and the Great Recession: Evidence of Effects on the Employment and Income Trajectories of Low-Skilled Workers

NBER WORKING PAPER No. 20724 (December 2014)

This article estimates the minimum wage’s effects on low-skilled workers’ employment and income trajectories. By comparing workers in states that were bound by recent increases in the federal minimum wage to workers in states that were not, the authors find that binding minimum wage increases had significant, negative effects on the employment and income growth of targeted workers. Lost income reflects contributions from employment declines, increased probabilities of working without pay (i.e., an “internship” effect), and lost wage growth associated with reductions in experience accumulation. The authors argue that because they identify targeted workers on a population-wide basis, their approach is relatively well suited for extrapolating to estimates of the minimum wage’s effects on aggregate employment. Over the late 2000s, the average effective minimum wage rose by 30 percent across the United States. The authors estimate that these minimum wage increases reduced the national employment-to-population ratio by 0.7 percentage point.