Minimum Wages and Labor Markets in the Twin Cities
We bring new evidence on the labor market effects of large minimum wage increases by using merged administrative datasets from Minnesota to examine the policy changes implemented by Minneapolis and Saint Paul. We begin by using synthetic difference-in-differences methods to estimate counterfactual outcomes at the zip code level from Minnesota and at the city level from the rest of the country. The minimum wage did not affect employment in most industries but exerted a negative impact on restaurants' employment, with an elasticity of –0:8. Next, using variation in exposure to the minimum wage across establishments and workers within the Twin Cities, we find employment effects that are half as large as those from the time series. The cross-sectional estimates difference out employment effects from the pandemic or civil unrest that could confound the time series comparisons, but they do not include potential effects of the minimum wage operating through equilibrium adjustments such as entry. We quantify a model of establishment dynamics to reconcile the different estimates and argue that they plausibly reflect lower and upper bounds of employment losses. We use the model to show that our estimates are consistent with an establishment elasticity of labor demand of –1 and illustrate how they can inform deeper parameters characterizing product and labor market competition, factor substitution, and establishment dynamics.
We thank Evan Cunningham, Katerina Gribbin, and Pedro Tanure Veloso for excellent research assistance and Oriane Casale, Mustapha Hammida, and Steve Hine for help with the administrative data used in this paper. Any opinions and conclusions expressed herein are those of the authors and do not necessarily represent the views of the Minnesota Department of Employment and Economic Development, the Federal Reserve Bank of Minneapolis, the Federal Reserve System, or the National Bureau of Economic Research. All results have been reviewed by the Minnesota Department of Employment and Economic Development to ensure that no confidential information has been revealed.
I have an ongoing consulting relationship with the Federal Reserve Bank of Minneapolis.