Higher Minimum Wages Mean There are More Jobs

In “High Minimum Wages and the Monopsony Puzzle,” a team of economists at the University of California, Berkeley examined 47 large U.S. counties where the minimum wage had reached $15 an hour by the first quarter of 2021, and compared their wage levels and employment figures to those of similar counties that hadn’t raised the minimum wage since 2009. They focused specifically on fast-food workers, so as to avoid the complexities introduced by the tipped-wages common among servers at more upscale restaurants.

Our results indicate that the high minimum wage policies we study increased earnings and had no disemployment effects. We further show that minimum wages increased 10th percentile hourly wages without affecting median wages, and that P50/P10 wage inequality would not have fallen in California or New York in the absence of minimum wage increases.

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The larger positive employment estimates in these sub-samples suggest that selection and attenuation effects can obscure evidence of how minimum wages overcome monopsony power and raise employment.

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To conclude, our paper demonstrates that the rapid growth of minimum wages to high levels in California and New York resulted in increased earnings without causing negative employment effects. Indeed, our evidence suggests that these minimum wage increases resulted in employment gains. We thereby extend the minimum wage literature and add to the burgeoning literature that finds evidence of employer power in low-wage labor markets