CEPR The Wage and Employment Impact of Minimum-Wage Laws in Three Cities
This report analyzes the wage and employment effects of the first three city-specific minimum wagesin the United States –San Francisco (2004), Santa Fe (2004), and Washington, DC (1993). We usedata from a virtual census of employment in each of the three cities, surrounding suburbs, andnearby metropolitan areas, to estimate the impact of minimum-wage laws on wages and employmentin fast food restaurants, food services, retail trade, and other low-wage and small establishments. We evaluate these impacts using the general approach outlined in Card and Krueger’s (1994, 2000)studies of the 1992 New Jersey state minimum-wage increase. In our setting, the Card and Kruegermethodology involves comparing wages and employment before and after the city minimum-wage with changes over the same period in wages and employment in comparable establishments innearby areas unaffected by the citywide minimum wage. The results for fast food, food services, retail, and low-wage establishments in San Francisco andSanta Fe support the view that a citywide minimum wages can raise the earnings of low-wage workers, without a discernible impact on their employment. Moreover, the lack of an employmentresponse held for three full years after the implementation of the measures, allaying concerns thatthe shorter time periods examined in some of the earlier research on the minimum wage was notlong enough to capture the true disemployment effects.Our estimated employment responses generally cluster near zero, and are more likely to be positivethan negative. Few of our point estimates are precise enough to rule out either positive or negativeemployment effects, but statistically significant positive employment responses outnumberstatistically significant negative elasticities.In general, our findings are consistent with earlier research by Card and Krueger (1994, 1995, 2000),Dube, Lester, and Reich (2011), and others who have found – at the federal and state level – thatpolicy makers tend to set levels of the minimum wage that raise wages of low-wage workers withoutsignificant negative effects on the employment of low-wage workers. Our findings are alsoconsistent with earlier studies of the citywide minimum wages in San Francisco (Dube, Naidu, andReich, 2006) and Santa Fe (Potter, 2006). We also find that the minimum-wage increase implemented in Washington, DC, in 1993 was toosmall to raise wages in fast food, food services, retail, and other low-wage establishments. Data for Washington show that a relatively low share of the city’s hourly workers were in the wage rangeaffected by the new city minimum and also suggest that the measure was not enforced (more workers earned below the new city minimum after it was enacted than had earned in that rangebefore the law went into effect). The citywide minimum wage in Washington therefore does notconstitute a meaningful policy experiment, and does not allow us to draw conclusions about theemployment effects of binding citywide minimum wages. The experience of smaller establishments in San Francisco and Santa Fe – whether they were initially below or just above the size exempted by the new laws – suggests that small establishments do notrespond to minimum wages differently than larger firms. Small establishments below the size cutoffsin those cities did not experience systematic changes in employment. The same was true for smallestablishments just above the size cutoffs in these cities.