RT Journal Article
SR Electronic
T1 Does Employment Respond Differently to Minimum Wage Increases in the Presence of Inflation Indexing?
JF Journal of Human Resources
JO J Hum Resour
FD University of Wisconsin Press
SP 999
OP 1024
DO 10.3368/jhr.55.2.1216.8404R2
VO 55
IS 3
A1 Brummund, Peter
A1 Strain, Michael R.
YR 2020
UL http://jhr.uwpress.org/content/55/3/999.abstract
AB The minimum wage literature focuses heavily on “the” employment elasticity of minimum wage increases. In contrast, this study focuses on heterogeneity in minimum wage policy. Specifically, we study whether minimum wage increases lead to differential employment effects in states where minimum wages are indexed to inflation. We find evidence they do. To the best of our knowledge, this work is the first to empirically study inflation indexing. On balance, our results imply that the immediate disemployment effect of an increase in the minimum wage in a state that indexes its minimum wages to inflation is around three times the magnitude of the disemployment effect associated with a nominal increase in the minimum wage. Our finding is robust across both “canonical” and “county-pair” models, though it does not hold in our most restrictive specification. Examining the timing of the employment response reveals the disemployment effect associated with a change in the minimum wage is concentrated in the first 14 quarters after a state begins indexing minimum wages to inflation.