Introduction
In recent years, a new wave of state and local activity has transformed minimum wage policy in the U.S. As of August 2018, ten large cities and seven states have enacted minimum wage policies in the $12 to $15 range. Dozens of smaller cities and counties have also enacted wage standards in this range. These higher minimum wages, which are being phased in gradually, will cover well over 20 percent of the U.S. workforce. With a substantial number of additional cities and states poised to soon enact similar policies, a large portion of the U.S. labor market will be held to a higher wage standard than has been typical over the past 50 years.
These minimum wage levels substantially exceed the previous peak in the federal minimum wage, which reached just under $10 (in today’s dollars) in the late 1960s. As a result, the new policies will increase pay directly for 15 to 30 percent of the workforce in these cities and as much as 40 to 50 percent of the workforce in some industries and regions. By contrast, the federal and state minimum wage increases between 1984 and 2014 increased pay directly for less than eight percent of the applicable workforce.
This report examines the effects of these new policies. Although minimum wage effects on employment have been much studied and debated, this new wave of higher minimum wages attains levels beyond the evidential reach of most previous studies. Moreover, city-level policies might have effects that differ from those of state and federal policies. Yet, most of the empirical studies of minimum wages focus on the state and federal-level policies. The literature on the effects of city-level minimum wages is much smaller. Our report helps fill these gaps.
To better inform public discussion as states and localities consider new wage standards, the Center on Wages and Employment Dynamics has initiated a series of reports studying the effects of this new wave of minimum wage policies. The timing and coverage of these reports will be determined by the phase-in schedules of the minimum wage in each jurisdiction, the availability of sufficient data after the policy change, and the availability of a sufficient sample of comparison groups.
Our first report in this series focused on Seattle, one of the first movers in this new wave. Using a synthetic control method, this report obtained results consistent with the bulk of past research on the minimum wage. However, our results were at odds with the results from a University of Washington study on the Seattle policy (Jardim et al. 2017). Both studies stimulated considerable debate on the best methods and data for studying local minimum wage policies.
This report advances the discussion of high local minimum wages by using both event study and synthetic control methods, and by expanding our analysis to the effects in six cities that were early movers: Chicago, District of Columbia, Oakland, San Francisco, San Jose and Seattle. At the end of 2016 (the last year in our analysis), citywide minimum wages exceeded $10 in all of these cities and had reached $13 in two—San Francisco and Seattle.
Similar to our first report, we focus here on the food services industry, a major employer of low wage workers. We extend our previous methods here, using both event study and synthetic control designs to assess the policies’ effects. We report estimates that pool our data from all six cities as well as estimates that use the data for each city separately. Our various approaches yield broadly similar results. A 10 percent increase in the minimum wage increases earnings between 1.3 and 2.5 percent, depending on the model estimated. Moreover, we do not detect significant negative employment effects. These findings are similar to those in a recent state-of-the-art study of minimum wages up to $10 (Cengiz et al. 2018).
We apply a series of robustness tests to check whether our findings are influenced by contemporaneous changes in the cities that are not related to minimum wages. These tests include checks on the validity of our comparison groups—notably for whether they evolve in parallel to the cities before the policies went into effect. We also test for differences in outcomes between full and limited service restaurants, and whether our methods falsely detect effects in a high wage industry—professional services—or in comparison counties that did not experience a minimum wage increase. Results from these robustness tests support the conclusion that our overall findings do not reflect other changes taking place in the cities around the time the increases took effect.
The report proceeds as follows. Part 2 presents a brief review of recent minimum wage studies, especially in food services, and presents the minimum wage policies for each of the six cities. We describe the data we employ in our analyses in Part 3. Part 4 discusses our general evaluation strategy. We present the methods and results for our two evaluation approaches, event study and synthetic controls, in Parts 5 and 6, respectively. In Part 7 we conduct robustness and falsification tests. Lastly, we summarize the paper and conclude in Part 8. Appendix A provides a formal presentation of our methods and Appendix B provides additional results.
Highlights
- We examine the effects of minimum wage policies in six large cities with high citywide minimum wages: Chicago, the District of Columbia, Oakland, San Francisco, San Jose and Seattle. At the end of 2016, the last period of our data availability, citywide minimum wages exceeded $10 in all of these cities and had reached $13 in two—San Francisco and Seattle.
- Recent research on minimum wages up to $10 has generally not found employment effects. Ours is the first comprehensive look at effects of minimum wages above $10.
- We use the U.S. Bureau of Labor Statistics’ Quarterly Census of Employment and Wages (QCEW) administrative data for our analysis. The QCEW publishes a quarterly count of employment and wages reported by employers that belong to the Unemployment Insurance (UI) system, which covers more than 95 percent of all U.S. jobs.
- We focus on the food services industry, a major employer of the low-wage labor force.
- To measure the effects of the policies, we use two complementary statistical methods: Event study and synthetic control. Both methods isolate the causal effect of the local minimum wage policies by comparing the changes we observe in the six treated cities against a group of highly populated counties in metropolitan areas across the U.S.
- The six cities that implemented higher minimum wages have stronger private sector growth than the average comparison county. Simply comparing employment in the treated and comparison counties risks masking any true employment losses that may result from the higher minimum wages. Our analysis uses statistical methods that isolate the causal effect of the local minimum wage policies.
- Event study and synthetic control yield broadly similar results. On average across the six cities, we find that a 10 percent increase in the minimum wage increases earnings in the food services industry between 1.3 and 2.5 percent.
- We cannot detect significant negative employment effects. Our models estimate employment effects of a 10 percent increase in the minimum wage that range from a 0.3 percent decrease to a 1.1 percent increase, on average.
- Our conclusions are supported by robustness tests that check whether our findings are influenced by contemporary changes in the cities that are not related to minimum wages. For example, we test whether our event study and synthetic control methods detect earnings or employment effects in professional services, a high-wage industry that should not be affected. This falsification test passes in our event study models and for 11 out of 12 of the outcomes in our synthetic control analyses of each of the six cities separately.
- We will revisit these and other localities’ minimum wage policies, which in many cases will reach $15, as they become more fully implemented.