WHO BENEFITS FROM A MINIMUM WAGE INCREASE?
JOHN W. LOPRESTI AND KEVIN J. MUMFORD*
The authors address the question of how a minimum wage increase
affects the wages of low-wage workers relative to the wage the
worker would have if there had been no minimum wage increase.
The authors’ method allows for the effect to depend not only on
the initial wage of the worker but also nonlinearly on the size of the
minimum wage increase. Results indicate that low-wage workers
who experience a small increase in the minimum wage tend to have
lower wage growth than if there had been no minimum wage
increase. A large increase to the minimum wage not only increases
the wages of those workers who previously earned less than the new
minimum wage but also spills over to workers with moderately
higher wages. Finally, the authors find little evidence of heterogeneity in the effect by age, gender, income, and race.
T
he minimum wage literature has primarily focused on evaluating the
employment effects of a minimum wage increase.1 In this article, we
address the far less studied question of documenting the wage effects of a
minimum wage increase. We focus our attention on estimating how the
wage effects of a minimum wage increase differ across the wage distribution
and by the size of the increase. Most studies assume that a minimum wage
increase causes those workers with an initial wage between the old and the
new minimum wage to have their wage bumped up to the new minimum.
Some studies allow for minimum wage spillovers to a predefined group of
workers with slightly higher wages.2 When benefits are calculated, however,
1
See Card (1992a, 1992b); Katz and Krueger (1992); Neumark and Wascher (1992, 1995); Card and
Krueger (1994, 1995); Spriggs and Klein (1994); Deere, Murphy, and Welch (1995); Currie and Fallick
(1996); Lang and Kahn (1998); and Baker, Benjamin, and Stanger (1999). Neumark and Wascher
(2007) provide a comprehensive review.
2
The observation that a minimum wage increase affects the wages of workers earning more than the
new minimum wage originated with Gramlich (1976) and has been confirmed in many subsequent
studies.
*JOHN W. LOPRESTI is Assistant Professor of Economics at the College of William and Mary. KEVIN J.
MUMFORD is Associate Professor of Economics at Purdue University. We thank David Hummels, Steve
Martin, Justin Tobias, Stephen Woodbury, and Chong Xiang for helpful discussion and comments. We
acknowledge financial support from the Upjohn Institute for Employment Research. Additional results
and copies of computer programs used to generate the results presented in the article are available from
the authors at jwlopresti@wm.edu or mumford@purdue.edu.
KEYWORDs: wage effects, minimum wage
ILR Review, 69(5), October 2016, pp. 1171–1190
DOI: 10.1177/0019793916653595. Ó The Author(s) 2016
Journal website: ilr.sagepub.com
Reprints and permissions: sagepub.com/journalsPermissions.nav
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ILR REVIEW
the implicit assumption is that wages for low-wage workers would have
remained constant had it not been for the minimum wage increase.
In contrast, we start with the assumption that low-wage workers would
have experienced wage changes in the absence of a minimum wage
increase. In our approach, the benefit of a minimum wage increase to a particular low-wage worker is the difference between the hourly wage after the
minimum wage increase and the hourly wage the worker would have experienced had there been no increase. It is possible for this difference to be
negative for some workers if the wage increase they would have experienced
is larger than what they actually experienced with a small minimum wage
increase. This approach is most similar to that of Neumark, Schweitzer, and
Wascher (2004) in that we estimate the effect of a minimum wage increase
on the wages of current low-wage workers, allowing the effect to differ for
workers with different initial wage rates. Our analysis is different from that
of Neumark et al. (2004), however, in that we also allow for the effect to
depend on the size of the minimum wage increase without imposing linearity. Allowing for this additional flexibility in the estimation allows us to better understand how a minimum wage increase affects wages.
An alternative approach would be to analyze how a minimum wage
increase affects the wage distribution, as in DiNardo, Fortin, and Lemieux
(1996). This approach, however, is better suited to understanding how the
minimum wage affects income inequality and is not applicable to analyzing
how a minimum wage increase affects the wages of current low-wage workers. Because we estimate the effect for current workers, we can subsequently
analyze how the effect differs by the magnitude of the minimum wage
increase, by the initial wage, and for various demographic groups. For
example, it is well documented that workers earning the minimum wage
are predominantly women, adults (rather than teenagers), and members
of low-income households (bottom 40% of the household income
distribution). This does not necessarily imply, however, that these groups
experience larger wage gains from a minimum wage increase than other
groups do.
Our approach does not address employment effects, nor does it address
the wage effects for new entrants into low-wage positions who were not
working before the minimum wage increase, some of whom benefit from
the law change. These limitations are notable, but our question of how a
minimum wage increase affects the wages of current low-wage workers is
important to crafting minimum wage policy and has not been fully
answered. Our analysis provides a more complete picture of the wage effects
than has been previously available.
Our analysis shows that the wage impact of a minimum wage increase
depends on the size of the increase as well as the characteristics of the individual. Surprisingly, we find that a small increase may actually cause lowwage workers to experience less wage growth than they otherwise would
have without the increase. We do a great deal of sensitivity analysis and show
WHO BENEFITS FROM A MINIMUM WAGE INCREASE?
1173
that this finding is quite robust. We hypothesize that employers may use a
minimum wage increase as a focal point in setting wages, and thus a small
minimum wage increase may limit wage increases.
Data
We use the public-use Current Population Survey (CPS) outgoing rotation
group data between August 2005 and June 2008. CPS respondent households are interviewed for four consecutive months, followed by an eightmonth hiatus, followed by a final four consecutive months of interviews. A
household initially interviewed in January 2006 would thus be interviewed
through April of that year, as well as January through April of 2007. We
include only the fourth and eighth interview months—outgoing months
spaced one year apart—which contain more detailed employment and wage
data. Employing the methodology of Madrian and Lefgren (1999), we
match respondent interviews year to year on the basis of state, month interviewed, household identifiers, sex, race, and age.
Because of both the mobility of respondents between interview years and
reporting error, we are unable to match everyone interviewed in the fourth
interview month to a corresponding interview one year later. We match
72.8% of individuals in the CPS from August 2005 to June 2007 across sample years. This match rate is similar to that found in other time periods.
The less than perfect match rate raises the concern that our sample will not
be representative of the population if the observed attrition is not random.3
Specifically, if attrition is correlated with either wage growth or the size of
the minimum wage change, our results will be biased. We do not observe
wage growth for those individuals who are not matched, so we cannot
directly address this concern. However, we find no significant correlation
between state-level match rates and state average wage growth, state percapita GDP growth rate, or the magnitude of the state minimum wage
change in our time period.4 We view this as evidence against the concern
that the minimum wage increase itself may reduce the number of individuals we observe in the second period.
Our sample includes individuals age 16 and older who are employed at
the time of both interviews. To focus on workers in sectors covered by the
minimum wage, we impose a threshold $ 0.10 below the minimum wage
and exclude individuals reporting a wage below this threshold at the time
3
Our match rate is higher for older workers and those with higher wages. It is lowest for individuals
aged 20 to 24. These young workers are most likely to move from the household, and because the CPS
follows households rather than individuals, we are unable to match those who move between the fourth
and eighth interviews. It is thus not surprising that young, mobile workers are the least likely to be
matched.
4
State-level match rates for workers aged 16 to 65 range from 65.6% in Nevada to 80.4% in West
Virginia. There is a slightly negative, though not statistically significant, correlation between average wage
growth and the match rate. There is a slightly positive, though not statistically significant, correlation
between the magnitude of the minimum wage increase and the match rate.
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of either interview.5 We also exclude individuals reporting wage growth
greater than 1,000%. Finally, self-employed workers and those in the agricultural sector have been removed. This leaves us with a final sample of
101,299 observations. We report variable means from the matched full sample in column (1) of Table 1.
The period 2005 to 2008 is notable for a large number of U.S. state-level
minimum wage changes in addition to the federal minimum wage increase
of 2007. From 2005 to 2008, 28 states and the District of Columbia increased
the minimum wage. An additional 20 states were affected by the federal
increase.6 At the level of the individual observation, we define the minimum
wage increase as the change in the applicable minimum wage that occurs in
the year between interviews. For example, the Arkansas minimum wage rose
from $5.15 to $6.25 on October 1, 2006, and there was no minimum wage
change in 2007. An individual living in Arkansas whose first outgoing interview occurred in September 2006 is thus defined as having experienced a
$1.10 minimum wage increase, while an individual first interviewed in
October 2006 is defined as experiencing no increase.
Slightly fewer than 64% of the respondents in our sample experienced a
minimum wage increase between interviews. This includes individuals in 48
states and the District of Columbia. The remaining 36% of individuals who
did not experience a minimum wage increase between interviews span 44
states and the District of Columbia. These minimum wage changes differed
not only in their timing and location but also in their magnitude. Changes
during this period were as small as $ 0.10 and as large as $2.10.7 This dispersion in magnitude across states and time is the primary identifying variation
in our analysis.
This leads to an important question: Why did some states raise their minimum wage by only a small magnitude while others enacted a large increase?
There is a great deal of randomness inherent in the political process, and
this may be the main source of variation in the timing of increases to the
minimum wage. For our estimates to be unbiased, however, the size of the
minimum wage increases must also be ‘‘as good as’’ randomly assigned, conditional on the controls. We argue that this is the case. Some initial
5
For individuals who do not report an hourly wage, we use the reported weekly earnings divided by
the usual hours of work per week. Though this imputation likely introduces some measurement error
and potentially causes us to drop some individuals from the sample who reported either too high or too
low usual hours of work per week, we do not believe the imputation causes bias in the results.
Importantly, there is no evidence that the need to impute wages is in any way correlated with the minimum wage change. In our full sample, the correlation between the minimum wage change in a state-year
and the fraction of workers whose hourly wage is imputed is statistically indistinguishable from zero
(p value = 0.853).
6
Alaska, which had a minimum wage of $7.15 throughout the entire sample, and Minnesota, which
had a minimum wage of $6.15 throughout the entire sample, were not affected by a minimum wage
change in any year.
7
Montana increased its minimum wage from $6.15 to $6.25 on January 1, 2008. Iowa increased its minimum wage from $5.15 to $6.20 on April 1, 2007, and again to $7.25 on January 1, 2008, so individuals
first interviewed between January and March of 2007 experienced an increase of $2.10.
WHO BENEFITS FROM A MINIMUM WAGE INCREASE?
1175
Table 1. Summary Statistics
Minimum wage change
Variables
Observations
Mean wage
Percentage employed
Sex
Male
Female
Race
White
Black
Hispanic
Education
Less than high school
High school only
Associate’s degree or more
Age
16–19
20–24
25–34
35–44
45–54
65 +
Family income
Low
Low–mid
Mid
Mid–high
High
(1)
Full sample
(2)
No change
(3)
5%
(4)
5%–10%
(5)
10%–20%
(6)
. 20%
101,299
19.33
100
36,837
18.94
100
16,406
19.49
100
8,244
22.17
100
29,453
19.41
100
10,359
18.14
100
51.83
48.17
51.67
48.33
51.18
48.82
51.84
48.16
52.21
47.79
52.13
47.87
83.58
10.2
11.85
83.27
10.95
10.55
86.89
8.18
11.1
77.32
8.84
18.58
81.67
11.76
13.58
90.08
6.87
7.13
8.76
47.62
43.61
9.15
47.54
43.31
7.23
48.18
44.59
8.89
41.58
49.53
9.55
47.44
43.01
7.17
51.94
40.88
2.68
6.73
20.05
26.16
27.43
16.95
2.87
6.73
20.14
26.13
27.54
16.6
2.23
6.23
19.13
26.36
28.07
17.06
2.46
6.97
19.91
27.46
26.7
16.6
2.59
6.76
20.47
26.2
27.13
16.85
3.16
7.15
19.95
24.94
27.62
17.18
6.88
18.92
20.78
30.85
22.57
7.49
18.86
21.23
30.71
21.71
6.71
19.07
21.46
31.82
20.95
5.08
15.66
18.63
28.94
31.7
6.87
19.19
20.15
30.38
23.42
6.45
20.35
21.75
32.68
18.77
Notes: The following individuals have been removed: those earning a wage more than $ 0.10 below the
minimum wage, those earning an hourly wage greater than $100, those experiencing a wage change
greater than 1,000%, those listed as self-employed and agricultural workers, and individuals younger
than 16. Low-income families are defined as those with an annual family income of less than $20,000.
Low–mid income includes families earning between $20,000 and $40,000 annually. Mid includes
families earning between $40,000 and $60,000 annually. Mid-high includes families earning between
$60,000 and $100,000 annually, and high includes families earning at least $100,000 annually.
Individuals are weighted by sample weights included in the CPS.
supportive evidence is that those states that enacted a small increase in the
minimum wage come from all regions of the country, with substantial variation in the timing.8 In addition, as reported in columns (1) through (6) of
Table 1, no clear pattern emerges in the characteristics of state-year observations across the different groups defined by size of the minimum wage
increase. Furthermore, we find no statistically significant correlation
between the size of the minimum wage increase and the prior year’s state
8
In our 2005 to 2008 time period, Arizona, Colorado, Connecticut, Florida, Maine, Michigan,
Missouri, Montana, Nevada, Oregon, Ohio, Rhode Island, Vermont, and Washington all enacted a minimum wage increase that set the new minimum wage no more than 5% higher than the old.
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Table 2. Wage Mobility
Second interview wage
First interview wage
Minimum wage*1.1
MW *1.1–MW *1.25
MW *1.25–MW *1.5
MW *1.5–MW *2
MW *2 \
Minimum
wage*1.1
MW *1.1–
MW *1.25
MW *1.25–
MW *1.5
MW *1.5–
MW *2
MW *2 \
25.01
7.08
3.18
1.12
0.42
21.05
19.84
6.47
2.94
0.82
19.76
26.55
27.71
7.12
2.17
19.01
23.40
32.99
43.23
7.74
15.17
23.13
29.65
45.59
88.85
Notes: The above table includes 36,837 individuals from 44 states and the District of Columbia who did
not experience a minimum wage increase between interviews. Percentages represent the percentage of
a given wage bin at the time of the first interview that belong to a given bin at the time of the second
interview, so that percentages sum horizontally to 100. Individuals are weighted by sample weights
included in the CPS.
GDP growth rate, unemployment rate, union membership rate, price level,
or poverty rate. We have identified no factors that appear to drive the size
of minimum wage increases, and we view this as support for our assertion.
Before proceeding to the empirical analysis, we pause to note an important aspect of the data. We observe considerable upward wage mobility
among low-wage workers even in the absence of a minimum wage law
change. Table 2, which examines the wage mobility of workers who did not
experience a minimum wage change between interviews, illustrates this
point. Workers are divided into five categories based on their wage relative
to the applicable minimum wage at the time of the first interview. We
report the movement of workers among these groups between their first
and second interviews. Specifically, the table reports the percentage of
workers in a particular group at time t that belong to a given group at time
t + 1. As shown in the table, most low-wage workers experience considerable wage growth in our sample, even in the absence of a minimum wage
increase. Approximately one-quarter of the workers earning no more than
10% above the minimum wage at the time of their first interview still earn
within 10% of that minimum a year later. Furthermore, more than half of
these individuals earn more than 25% above the minimum wage at the time
of their second interview. For an individual in a state with a minimum wage
of $5.15, this implies that only 25% would still have a wage of no more than
$5.65, and more than half would have a wage greater than $6.40.9
We observe similar patterns higher in the wage distribution. Of those
individuals earning between 25 and 50% above the minimum wage at the
time of their first interview, over 60% earn more than 50% above the minimum wage the following year, with more than 29% earning more than double the minimum. These simple averages reveal that minimum wage
9
The federal minimum wage prior to the 2007 increase, $5.15, is the applicable minimum wage for
more than half the individuals who do not experience a minimum wage increase in our sample.
WHO BENEFITS FROM A MINIMUM WAGE INCREASE?
1177
changes are occurring not in a static environment but rather in one in
which there is already a large degree of upward mobility among low-wage
earners.
Estimation
The large number and staggered timing of state-level minimum wage
changes creates a rich environment in which to analyze the effects of minimum wage law changes. We abstract from any employment effects and
focus solely on the wage effects of a minimum wage change conditional on
continued employment. We hypothesize that such effects may differ along
two dimensions. First, following Neumark et al. (2004), we allow the effect
of a minimum wage increase to vary throughout the wage distribution, with
individuals at or near the initial minimum wage level experiencing wage
changes that are different from those experienced by individuals at the
upper end of the wage distribution. The wage effect at or near the initial
minimum wage is primarily mechanical, while those effects higher in the
wage distribution are often called minimum wage spillovers. Second, we
examine effects that vary according to the size of the change in the minimum wage itself.
Nearly 64% of the individuals in our sample experienced a minimum
wage increase, but there is substantial heterogeneity in the size of this
increase. More than 16% experienced a small minimum wage increase of
less than 5% of the initial minimum wage, while more than one-tenth experienced a very large increase of more than 20% of the initial minimum
wage. Figure 1 shows this heterogeneity in a histogram of the size of the
minimum wage increases experienced by the individuals in our sample.
In order for our model to allow for different effects by the initial-wage
group and by the size of the minimum wage increase, we employ the following specification:
ð1Þ %DWimys = b0 +
7
X
bj 1(WageGroupimys = j) +
j =1
7 X
5
X
5
X
gk 1(DMinWagemys = k) +
k =1
djk 1(WageGroupimys = j) 3 1(DMinWagemys = k) +
j =1 k =1
hXimys + ls + mm + vy + eimys :
The dependent variable %DWimys is defined as the fractional wage change
(the percentage wage change divided by 100) between interviews experienced by individual i first interviewed in month m of year y in state s.
The variable 1(WageGroupimys = j) is an indicator variable equal to 1 if
individual i has a wage in the range of wage group j at the time of the first
interview. It is included to account for differences in the rate of wage
growth across the wage distribution. We define seven wage groups, with the
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Figure 1. Percentage Change in the Minimum Wage
Notes: The above figure depicts the percentage change in minimum wage laws affecting 64,462 individuals in 48 states and the District of Columbia who experienced a minimum wage change between interviews. The spike at 13.6 is the 2007 federal minimum wage increase.
first three groups corresponding to initial hourly wages less than 10% above
the minimum wage at the time of the first interview, between 10 and 20%
above the minimum wage, and between 20 and 30% above the minimum
wage, respectively. The fourth group corresponds to an initial hourly wage
at least 30% above the minimum wage but less than $11 (approximately the
25th percentile of the wage distribution). The final three wage groups
include initial hourly wages within approximately the second, third, and
fourth quartiles of the wage distribution at the time of their first interview.
The wage ranges for the seven wage groups, along with the number of individuals with an initial wage within each wage group, are given in Table 3.
Similarly, 1(DMinWagemys = k) is an indicator variable equal to 1 if the
minimum wage increase in state s in month m of year y falls within
minimum-wage-change group k, where the groups are defined as in
Table 4. More than one-third of the individuals in our sample are included
in the first minimum-wage-change group, indicating no minimum wage
change. The remainder of the sample is divided between groups experiencing a minimum wage change of less than 5%, between 5% and 10%,
between 10% and 20%, and greater than 20%. For those in the sample who
experienced a minimum wage increase, about 45% experienced a minimum wage change of between 10% and 20%, which includes the federal
minimum wage change of approximately 13.6%. Table 4 also indicates the
number of states that experienced a minimum wage change within each
WHO BENEFITS FROM A MINIMUM WAGE INCREASE?
1179
Table 3. Minimum Wage Groups
Wage group
Observations
Wage Minimum wage*1.1
MW*1.1 \ Wage MW*1.2
MW*1.2 \ Wage MW*1.3
MW*1.3 \ Wage $11
$11 \ Wage $16
$16 \ Wage $24
$24 \ Wage
2,346
2,388
2,089
19,431
25,303
24,641
25,101
Notes: The above table includes 101,299 observations. The final three rows correspond approximately to
the upper three quartiles of the wage distribution.
Table 4. Minimum Wage Changes
Wage change
No minimum wage law change
0 \ Minimum wage law change 5%
5% \ Minimum wage law change 10%
10% \ Minimum wage law change 20%
20% \ Minimum wage law change
Observations
States
36,837
16,406
8,244
29,453
10,359
45
14
8
33
11
bin. Note that within our sample period the same state may have experienced both a year with a minimum wage change and a year without a minimum wage change.
To allow for differential effects of a minimum wage increase throughout
the wage distribution, we include the interaction of these two indicator variables. With the no-change group excluded, this leaves 28 djk parameters indicating the effect of an increase in the minimum wage of a given size
(indicated by group k) for initial-wage group j relative to the baseline initialwage groups that experienced no minimum wage change. Not only does
this allow for a differential effect of a minimum wage increase by initial-wage
group, as in Neumark et al. (2004), it also allows for a nonlinear response to
an increase in the minimum wage that differs by the magnitude of the
change. This allows for the possibility not only that minimum wage changes
affect low- and high-wage individuals differently but also that the difference
between the low- and high-wage responses depends on the magnitude of the
minimum wage increase. The flexibility of this model allows for a more complete understanding of the wage effects of a minimum wage increase. The
model also includes a vector of controls, Xisy , including gender, race, ethnicity, education level, family income, and a quadratic term in age.
A primary concern is that state-level minimum wage changes might occur
in response to changes in state-level economic conditions. Our results could
be biased if states with a low rate of wage growth are more (or less) inclined
to increase the minimum wage. In an attempt to control for this, we include
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Table 5. Ordinary Least Squares
Minimum wage change (%)
Wage group
Wage Minimum wage*1.1
MW*1.1 \ Wage MW*1.2
MW*1.2 \ Wage MW*1.3
MW*1.3 \ Wage $11
$11 \ Wage $16
$16 \ Wage $24
$24 \ Wage
Observations
5
5–10
10–20
. 20
Observations
20.108**
(0.050)
20.076
(0.054)
20.219***
(0.038)
20.056**
(0.025)
0.012
(0.014)
0.008
(0.013)
20.0004
(0.018)
16,406
0.036
(0.051)
20.064
(0.045)
20.006
(0.083)
0.002
(0.015)
0.036***
(0.013)
0.031
(0.024)
20.020
(0.013)
8,244
0.080
(0.053)
0.06
(0.049)
20.033
(0.049)
0.024**
(0.012)
0.008
(0.012)
0.002
(0.007)
20.007
(0.008)
29,453
0.521***
(0.127)
0.166*
(0.087)
0.085
(0.066)
0.028
(0.019)
20.014
(0.011)
0.015
(0.011)
0.008
(0.013)
10,359
2,346
2,388
2,089
19,431
25,303
24,641
25,101
Notes: The above table reports results from a single ordinary least squares regression that includes all
101,299 observations. Additional covariates not reported above include race, ethnicity, gender,
education level, household income, age and age squared, the state monthly unemployment rate, the
lagged growth in state per capita GDP, the annual state union membership rate, the annual state
poverty rate, the percentage of workers in the state earning below the federal minimum wage, and the
state price level. Fixed effects are included for the state of residence and the month and year of the first
interview. The final three rows correspond approximately to the upper three quartiles of the wage
distribution. Standard errors are clustered at the state level.
Significance levels: *** 1%; **5%; * 10%.
several variables measuring state-level economic conditions, including the
state poverty rate, the percentage of workers earning a wage that is below
the federal minimum wage, the percentage of workers in the state who
belong to a union, the growth rate in state per capita GDP in the year prior
to the individuals’ first interview, and state price level.10 To control for the
possibility that governments are able to respond within years to changes in
economic conditions, we have included the monthly state unemployment
rate. Finally, to control for broader macroeconomic and geographical
trends as well as seasonality, we include month, year, and state fixed effects.
Results
We report the estimated impact of a minimum wage change of size k for
wage group j, which is given by ^gk + ^djk from Equation (1), in Table 5 along
with corresponding standard errors. For ease of exposition, we report only
this estimated effect and corresponding standard errors; complete tables
with all suppressed covariates are available upon request. The columns of
10
The annual state price level was calculated following Aten and Figueroa (2014) using the Bureau of
Economic Analysis ‘‘regional price parities’’ in combination with the consumer price index.
WHO BENEFITS FROM A MINIMUM WAGE INCREASE?
1181
Table 5 do not indicate separate specifications, as is common in the literature; the coefficient estimates are from a single regression presented in
matrix form. Each reported coefficient estimate represents the effect of a
given minimum wage change for individuals within a given wage group
relative to individuals within the same wage group who experienced no increase in the
minimum wage. Thus, an individual initially earning within 10% of the minimum wage who experienced an increase in the minimum wage of less than
5% saw her wage increase by 10.8% less than an individual who saw no minimum wage increase. An individual in the same wage group who experienced a
minimum wage increase of greater than 20% (up to 41% in our sample) experienced 50% greater wage growth than did an individual experiencing no minimum wage law change.11
The results are striking. Within the first quartile of the wage distribution,
individuals experiencing minimum wage increases of less than 5% have
lower wage growth than similar individuals who experience no change in the
minimum wage law, with the magnitude of the estimated effect ranging
from 25.6 to 221.9%. Moderate minimum wage changes of 5 to 20% lead
to small, often statistically insignificant wage effects. It is only for minimum
wage increases in excess of 20% that we observe strong positive wage effects
of a minimum wage increase, with these effects concentrated among workers with an initial wage no more than 10% above the minimum wage. Of
the individuals experiencing a minimum wage increase in our sample,
nearly 25% experienced an increase of less than 5%. The possibility that
such changes might yield lower wage growth for low-wage individuals, even
ignoring potential disemployment effects, is surprising.
Though we have limited our sample to individuals whose wage increases
by less than a factor of 10, more than 6% of the individuals in the remaining sample report at least a doubling of their hourly wage between interviews. Furthermore, nearly 5% reported a decline in hourly wages of more
than one-half. It is unlikely that such outcomes are driven primarily by
changes in minimum wage laws. In an effort to mitigate the effect of such
extreme wage changes on our estimates, we repeat the above specification
in a median regression framework as proposed by Koenker and Bassett
(1978). The median regression estimates of the djk parameters from
Equation (1) are the effects of the minimum wage increase at the median
percentage wage change rather than on average. Skewness in the conditional percentage wage change distribution causes the OLS results to be different from the median regression results. To the extent that the results
differ, we prefer the median regression results as they ignore extreme wage
changes.
11
An effect this large may not be plausible. Note, however, that the 95% confidence interval ranges
from 26 to 77%. Right skewness in the wage change distribution may be driving these OLS parameter
estimates up.
1182
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Table 6. Median Regression
Minimum wage change (%)
Wage group
Wage Minimum wage*1.1
MW*1.1 \ Wage MW*1.2
MW*1.2 \ Wage MW*1.3
MW*1.3 \ Wage $11
$11 \ Wage $16
$16 \ Wage $24
$24 \ Wage
Observations
5
5–10
10–20
. 20
Observations
20.036
(0.032)
20.075**
(0.032)
20.093***
(0.027)
20.028**
(0.011)
0.000
(0.007)
0.009
(0.007)
0.009
(0.014)
16,406
0.055
(0.079)
0.003
(0.048)
0.070**
(0.030)
20.0080
(0.013)
0.006
(0.007)
0.008
(0.009)
20.009
(0.011)
8,244
0.081***
(0.029)
0.046**
(0.022)
20.001
(0.020)
0.003
(0.006)
0.001
(0.005)
20.001
(0.004)
20.004
(0.008)
29,453
0.286***
(0.103)
0.131***
(0.029)
0.107**
(0.053)
0.018*
(0.010)
20.010**
(0.005)
0.002
(0.007)
0.008
(0.010)
10,359
2,346
2,388
2,089
19,431
25,303
24,641
25,101
Notes: The above table reports results from a single median regression that includes all 101,299
observations. Additional covariates not reported above include race, ethnicity, gender, education level,
household income, age and age squared, the state monthly unemployment rate, the lagged growth in
state per capita GDP, the annual state union membership rate, the annual state poverty rate, the
percentage of workers in the state earning below the federal minimum wage, and the state price level.
Fixed effects are included for the state of residence and the month and year of the first interview. The
final three rows correspond approximately to the upper three quartiles of the wage distribution.
Standard errors are clustered at the state level.
Significance levels: *** 1%; **5%; * 10%.
Table 6 reports results for the median regression specification. Again, the
parameter estimates are from a single median regression; the columns do
not indicate separate regression specifications. The median regression point
estimates are generally smaller than those from the OLS specification, but
the qualitative results are similar. Individuals earning an initial hourly wage
in the bottom quarter of the wage distribution (below $11) experience
lower wage growth following a minimum wage increase of less than 5% than
do similar individuals experiencing no minimum wage change. The magnitude of this effect varies from 22.8 to 29.3%, with results significant at the
5% level for all wage levels except those within 10% of the minimum wage.
Individuals initially earning a wage within 20% of the minimum wage
experience increased wage growth after a minimum wage increase of 10%
or larger, while individuals with an initial wage no more than 30% larger
than the minimum wage experience increased wage growth for minimum
wage increases of 20% or more. The wage effects of a minimum wage
increase of any magnitude disappear for individuals earning an initial wage
in the upper half of the wage distribution (wages above $16).
Thus the story is broadly consistent. Small increases in the minimum
wage have negative effects on wage growth for low-wage individuals. Larger
increases have positive effects on low-wage individuals, with the effects being
WHO BENEFITS FROM A MINIMUM WAGE INCREASE?
1183
felt most strongly by those at or very near the initial minimum wage level.
Minimum wage increases have little to no effect on individuals in the upper
three quartiles of the wage distribution. These results suggest that small
minimum wage increases dampen wage growth for those at the bottom of
the wage distribution. The median low-wage worker experiences higher
wage growth without a minimum wage increase than with a small increase.
Are the estimated effects for low-wage workers experiencing a small minimum wage increase reasonable? The results suggest that wages for low-wage
workers in states with a minimum wage change of less than 5% would have
grown by 2.8 to 9.3 percentage points more had there been no increase in
the minimum wage. The median wage growth for low-wage workers in stateyear combinations with no minimum wage increase is about 20%, so estimates suggesting that a small increase in the minimum wage reduces
expected wage growth by 5 or even 10% are plausible.
One possible explanation for this finding is that the minimum wage
increase acts as a focal point for employers in determining wages. When the
increase is small, employers react by increasing low-wage workers’ wages
only by the required amount. Without a minimum wage increase, however,
there is no low-wage-growth focal point, and the resulting wage growth is
higher for low-wage workers who experience no minimum wage increase
than for those who experience a small increase.
This focal-point explanation for this finding is consistent with a model
proposed by Shelkova (2008) in which low-wage employers tacitly collude in
setting wages. In the model, there is no wage bargaining; employers post a
wage and then wait for vacancies to fill. This creates an incentive for
employers to coordinate on a wage below the marginal product of labor. In
an infinitely repeated game, the equilibrium wage can be anywhere between
the wage that a monopsonist would set and the marginal product of labor
(the competitive equilibrium). The minimum wage may be a focal point
that makes it easier to sustain coordination, as in Schelling (1960).
For workers with a wage above the minimum wage, the change in the
minimum wage could act as a focal point in determining raises. Our results
show that the strongest estimated negative wage effects are for those with
an initial wage between 10% and 30% above the minimum. These individuals would not directly benefit from a small minimum wage increase and
therefore may experience only the low-wage-growth focal point effect from
the increase.
Robustness Tests
Another explanation for this result is that it is simply caused by some
omitted variable bias. It could be that states that increase the minimum
wage by a small amount every year happen to have lower wage growth for
unrelated reasons. Perhaps states that never increase the minimum wage in
our sample period happen to have higher wage growth for unrelated
1184
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Table 7. Median Regression with Constant States Removed
Minimum wage change (%)
Wage group
Wage Minimum wage*1.1
MW*1.1 \ Wage MW*1.2
MW*1.2 \ Wage MW*1.3
MW*1.3 \ Wage $11
$11 \ Wage $16
$16 \ Wage $24
$24 \ Wage
Observations
5
5–10
10–20
. 20
Observations
20.043
(0.041)
20.057**
(0.025)
20.095**
(0.038)
20.048***
(0.014)
20.002
(0.007)
0.007
(0.008)
0.012
(0.011)
6,485
0.038
(0.060)
20.016
(0.082)
0.068*
(0.039)
20.011
(0.009)
0.006
(0.007)
0.013
(0.009)
20.004
(0.012)
7,825
0.070**
(0.029)
0.037
(0.023)
20.0040
(0.025)
20.0002
(0.006)
20.001
(0.005)
20.002
(0.004)
0.003
(0.006)
28,261
0.277***
(0.075)
0.119***
(0.032)
0.105*
(0.058)
0.013
(0.009)
20.013**
(0.005)
0.002
(0.008)
0.014*
(0.009)
10,359
1,834
1,893
1,636
17,182
21,227
20,578
21,274
Notes: The above table reports results from a median regression that includes 85,624 observations.
Observations from states with a minimum wage change that falls into the same change bin in each year,
and observations from states that never change the minimum wage have been removed. Additional
covariates not reported above include race, ethnicity, gender, education level, household income, age
and age squared, the state monthly unemployment rate, the lagged growth in state per capita GDP, the
annual state union membership rate, the annual state poverty rate, the percentage of workers in the
state earning below the federal minimum wage, and the state price level. Fixed effects are included for
the state of residence and the month and year of the first interview. The final three rows correspond
approximately to the upper three quartiles of the wage distribution. Standard errors are clustered at
the state level.
Significance levels: *** 1%; **5%; * 10%.
reasons. As a robustness test, we repeat the median regression specified
above, excluding states that raise the minimum wage each year in our sample, as well as those that did not change the minimum wage at all.12 This
reduces our sample to 85,624 observations, with results reported in Table 7.
The point estimates in Table 7 for low-wage individuals experiencing small
minimum wage increases remain negative, and the level of statistical significance declines only slightly. It seems clear that our main finding is not driven by these ‘‘constant’’ states.
One might worry that even with the inclusion of state fixed effects and
state-year-level controls, there may be omitted variables related to state-level
economic conditions that simultaneously affect percentage wage growth
and the likelihood of a minimum wage change. If these unmeasured stateyear economic conditions are correlated with the state minimum wage
changes, this may bias our results. To control for such potential omitted
variables, we repeat the specification from Table 6 and include state-by-year
fixed effects. Note that with this inclusion, identification no longer comes
12
These include Alaska, Florida, Maine, Minnesota, Oregon, Vermont, Washington, and West Virginia.
WHO BENEFITS FROM A MINIMUM WAGE INCREASE?
1185
Table 8. Median Regression, State-Year Fixed Effects
Minimum wage change (%)
Wage group
Wage Minimum wage*1.1
MW*1.1 \ Wage MW*1.2
MW*1.2 \ Wage MW*1.3
MW*1.3 \ Wage $11
$11 \ Wage $16
$16 \ Wage $24
$24 \ Wage
Observations
5
5–10
10–20
. 20
Observations
20.060*
(0.031)
20.093***
(0.031)
20.117***
(0.024)
20.050***
(0.017)
20.023**
(0.011)
20.010
(0.012)
20.012
(0.018)
16,406
20.005
(0.087)
20.059
(0.042)
0.012
(0.032)
20.065***
(0.014)
20.053***
(0.015)
20.047**
(0.018)
20.062***
(0.018)
8,244
0.072**
(0.029)
0.037
(0.026)
20.0140
(0.019)
20.004
(0.006)
20.007
(0.005)
20.010**
(0.005)
20.013
(0.009)
29,453
0.277***
(0.106)
0.121***
(0.031)
0.094*
(0.055)
0.009
(0.013)
20.019**
(0.009)
20.005
(0.010)
0.0002
(0.013)
10,359
2,346
2,388
2,089
19,431
25,303
24,641
25,101
Notes: The above table reports results from a single median regression that includes 101,299
observations. Additional covariates not reported above include race, ethnicity, gender, education level,
household income, age and age squared, and the state monthly unemployment rate. The final three
rows correspond approximately to the upper three quartiles of the wage distribution. Standard errors
are clustered at the state level.
Significance levels: *** 1%; **5%; * 10%.
from variation in minimum wage changes that occur on January 1, as such
variation will be collinear with the state-by-year effects. However, a large
number of minimum wage changes—most notably the federal minimum
wage change in 2007—took place during, as opposed to at the beginning
of, the calendar year. Results for this specification are reported in Table 8.
As before, the broad story remains unchanged.
The specifications described thus far have not allowed covariates other
than those pertaining to the magnitude of the minimum wage change to
vary throughout the wage distribution. For instance, the effect of a bachelor’s degree on wage growth is constrained to be the same for an individual
earning a wage near the minimum wage as for an individual earning many
times more than this. This is perhaps a set of overly strict restrictions on the
parameters. Thus, Table 9 reports results for a specification in which the
covariates for race, ethnicity, education, gender, and age, as well as the
state-level economic controls, are each allowed to vary by wage group. This
additional flexibility again leaves the qualitative results largely unchanged.
Finally, from a policy perspective, these results are of most relevance if
they hold for individuals for whom low-wage jobs represent their primary
source of income. We thus repeat the specification from Table 6, including
only workers aged 23 to 65. Results, reported in Table 10, reveal a similar,
albeit slightly noisier pattern. The estimated coefficients for minimum wage
increases of less than 5% are negative for all wage groups in the first
1186
ILR REVIEW
Table 9. Median Regression, Flexible Covariates
Minimum wage change (%)
Wage group
Wage Minimum wage*1.1
MW*1.1 \ Wage MW*1.2
MW*1.2 \ Wage MW*1.3
MW*1.3 \ Wage $11
$11 \ Wage $16
$16 \ Wage $24
$24 \ Wage
Observations
5
5–10
10–20
. 20
Observations
20.020
(0.030)
20.068**
(0.027)
20.117***
(0.028)
20.020*
(0.011)
0.0004
(0.007)
0.012*
(0.006)
0.001
(0.009)
16,406
0.087
(0.077)
0.025
(0.037)
0.020
(0.055)
20.018
(0.013)
0.005
(0.008)
0.007
(0.009)
20.001
(0.008)
8,244
0.089***
(0.024)
0.046
(0.029)
20.0004
(0.030)
20.002
(0.006)
20.001
(0.005)
20.001
(0.004)
0.002
(0.007)
29,453
0.274***
(0.042)
0.117***
(0.039)
0.055
(0.049)
0.018**
(0.009)
20.008
(0.005)
0.003
(0.006)
0.002
(0.007)
10,359
2,346
2,388
2,089
19,431
25,303
24,641
25,101
Notes: The above table reports results from a single median regression that includes 101,299
observations. Additional covariates not reported above include race, ethnicity, gender, education level,
household income, age and age squared, the state monthly unemployment rate, the lagged growth in
state per capita GDP, the annual state union membership rate, the annual state poverty rate, and the
percentage of workers in the state earning below the federal minimum wage, and the state price level,
as well as wage group interactions with the race, ethnicity, education, gender, and age variables. Fixed
effects are included for the state of residence and the month and year of the first interview. The final
three rows correspond approximately to the upper three quartiles of the wage distribution. Standard
errors are clustered at the state level.
Significance levels: *** 1%; **5%; * 10%.
quartile of the wage distribution. The estimated negative effects are even
larger than those reported in Table 6. The estimates are less precise, however, because the age restriction reduces the number of observations in the
first quartile of the wage distribution by over 20%.
Tables 7 through 10 indicate that the results hold across a broad range of
specifications and are not likely driven by the alternative explanations given
above. We argue that the results seem most consistent with the minimum
wage’s acting as a focal point in the employer wage-setting decision, which
causes percentage wage growth to be lower for low-wage workers if there is
a small minimum wage increase.
Heterogeneous Effects
The prior specifications allow the effect of a minimum wage increase to differ by the size of the increase and by the initial wage of the worker but not
by the worker’s characteristics. The minimum wage may have different wage
effects by gender, race, age, education, and income. In an attempt to see if
there are heterogeneous effects, we consider the effect of minimum wage
changes of varying sizes across subsamples of male, female, white, black,
WHO BENEFITS FROM A MINIMUM WAGE INCREASE?
1187
Table 10. Median Regression, Ages 23–65
Minimum wage change (%)
Wage group
Wage Minimum wage*1.1
MW*1.1 \ Wage MW*1.2
MW*1.2 \ Wage MW*1.3
MW*1.3 \ Wage $11
$11 \ Wage $16
$16 \ Wage $24
$24 \ Wage
Observations
5
5–10
10–20
. 20
Observations
20.043
(0.087)
20.113
(0.072)
20.149
(0.097)
20.028**
(0.012)
20.001
(0.006)
0.010*
(0.005)
0.005
(0.013)
15,185
0.154***
(0.054)
0.003
(0.065)
0.115
(0.139)
0.0020
(0.011)
0.006
(0.007)
0.009
(0.010)
20.013
(0.013)
7,559
0.157
(0.208)
0.078
(0.053)
20.038
(0.091)
0.004
(0.007)
0.001
(0.005)
20.002
(0.004)
20.006
(0.008)
27,134
0.594***
(0.098)
0.299***
(0.074)
0.125
(0.112)
0.015
(0.011)
20.012**
(0.005)
0.002
(0.008)
0.007
(0.010)
9,450
1,346
1,543
1,492
16,035
23,939
24,113
24,659
Notes: The above table reports results from a single median regression that includes 93,127 observations.
Additional covariates not reported above include race, ethnicity, gender, education level, household
income, age and age squared, the state monthly unemployment rate, the lagged growth in state per
capita GDP, the annual state union membership rate, the annual state poverty rate, the percentage of
workers in the state earning below the federal minimum wage, and the state price level. Fixed effects
are included for the state of residence and the month and year of the first interview. The final three
rows correspond approximately to the upper three quartiles of the wage distribution. Standard errors
are clustered at the state level.
Significance levels: *** 1%; **5%; * 10%.
Hispanic, young (age 22 and under), low education (no high school
diploma), and low income (annual household income under $40,000).
Because of the reduction in sample size, we limit the number of parameters
we need to estimate by repeating specification (1) with only two wage
groups: individuals with an initial wage within 30% of the minimum wage
and those with an initial wage more than 30% above it. Table 11 reports the
effects of the various minimum wage changes on the wage growth of individuals with an initial wage within 30% of the minimum wage relative to
low-wage individuals who experienced no minimum wage change. As
before, the results are from median regressions with the additional control
variables and state, month, and year fixed effects included. Each row represents a separate regression.
The qualitative story in this table is much the same as the one discussed
above: for nearly all groups, a minimum wage increase of less than 5% has a
negative effect on wage growth. The estimated effect for Hispanic individuals is slightly positive but is very small and not statistically significant. For all
other groups, the sign of the coefficient is negative. While the coefficient
for men is not statistically significant, the point estimate is negative and similar in magnitude to the estimate for women. We thus view Table 11 as evidence that our findings are not driven by any particular demographic
1188
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Table 11. Median Regression, Low-Wage Earners
Minimum wage change (%)
Variables
Men
Women
White
Black
Hispanic
22 and under
No diploma
Low income
5
5–10
10–20
. 20
Observations
20.047
(0.044)
20.059**
(0.027)
20.050**
(0.024)
20.141**
(0.067)
0.023
(0.037)
20.040
(0.039)
20.060***
(0.023)
20.045
(0.029)
0.065
(0.053)
0.040*
(0.021)
0.036*
(0.021)
0.121
(0.111)
0.004
(0.020)
0.007
(0.024)
0.021
(0.018)
0.024
(0.033)
0.044
(0.034)
0.037**
(0.019)
0.048***
(0.014)
20.002
(0.068)
0.042**
(0.017)
0.044**
20.019
0.040***
(0.016)
0.044**
(0.022)
0.154***
(0.042)
0.140***
(0.038)
0.173***
(0.040)
20.026
(0.063)
0.591***
(0.052)
0.134***
(0.025)
0.134***
(0.036)
0.210*
(0.109)
51,023
50,276
86,547
8,194
9,656
5,986
8,263
22,970
Notes: Each row reported in the table above represents a separate median regression including only the
specified demographic group. Reported coefficients are for individuals earning a wage at the time of
the first interview within 30% of the applicable minimum wage. Additional covariates not reported
above include race, ethnicity, gender, education level, household income, age and age squared, the
‘‘wage bin’’ to which an individual belongs at the time of the first interview, the state monthly
unemployment rate, the lagged growth in state per capita GDP, the annual state union membership
rate, the annual state poverty rate, the percentage of workers in the state earning below the federal
minimum wage, and the state price level. The low-income group includes individuals with a reported
household income of no more than $40,000 annually. Standard errors are clustered at the state level.
Significance levels: *** 1%; **5%; * 10%.
group. The negative wage effect of a small minimum wage increase seems
to hold across nearly all demographic groups.
Conclusion
Strong evidence supports that a small minimum wage increase actually
reduces the annual wage growth for many low-wage workers. This result is
important to labor policy and was previously absent from the minimum
wage literature. Larger minimum wage increases have positive wage effects
that spill over to workers with wages higher than the new minimum wage.
Workers with wages in the top three quartiles of the wage distribution do
not seem to experience any wage impact from a minimum wage increase
regardless of the size. These findings are robust to a variety of alternative
specifications and are generally consistent by income, gender, race, and
age.
We suggest that the negative effects of a minimum wage increase work by
setting a low-wage-growth focal point for employers of low-wage workers.
Had the minimum wage increase not occurred, employers would have
WHO BENEFITS FROM A MINIMUM WAGE INCREASE?
1189
provided larger wage increases to their employees. Though this focal-point
story is consistent with the results, we provide no evidence to substantiate
that this is the mechanism.
The data come from a period, 2005 to 2008, that is ideal for studying the
effect of a minimum wage increase because of the large number of statelevel minimum wage increases of various sizes. The short time period helps
us to address other methodological and interpretation issues common in
minimum wage studies. Our use of median regression methods increases
confidence that the results are being driven by the minimum wage increases
and not by skewness in the annual wage growth distribution.
It should be recognized that new entrants to low-wage jobs would likely
benefit from a minimum wage increase, and these individuals have been
excluded from the analysis. Similarly, workers who experience large wage
losses would also benefit from a minimum wage increase. Because there are
few of these workers their impact on the OLS regression result is small.
Finally, our study does not consider any increased unemployment risk for a
low-wage worker as a result of a minimum wage increase. Even with these
limitations, the results indicate that a small minimum wage increase likely
reduces wage growth for low-wage workers.
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Wage on Low-Wage Workers. Washington, DC: Economic Policy Institute.
Copyright of Industrial & Labor Relations Review is the property of Cornell University and
its content may not be copied or emailed to multiple sites or posted to a listserv without the
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Justice at Work: Minimum Wage Laws
and Social Equality
Brishen Rogers*
Are minimum wage laws just? Existing legal academic debate implies
that they are not. Drawing on neoclassical labor-market models, various legal
scholars have argued that minimum wage laws increase unemployment and
cause other inefficiencies, and therefore that legal scholars have argued that
direct transfers to the working poor are a superior means of ensuring
distributive justice. Accepting for the sake of argument that minimum wage
laws have such economic effects, this Article nevertheless defends them on
grounds of justice. It builds on well-worn arguments that a just state will not
just redistribute resources but will also enable citizens to relate to one another
as equals. This ideal of “social equality” is most commonly associated with
republican and communitarian theories of justice, but it is also central to major
strands of egalitarian liberalism. Minimum wage laws advance social equality,
and do so better than direct transfers, in several ways. They increase workers’
wages, which are a primary measure of the social value of work; they alter
workplace power relationships by giving workers rights vis-à-vis employers;
and they require employers and consumers to internalize costs of higher wages
rather than mediating all distribution through the state. In short, minimum
wage laws help ensure decent work, work that enhances rather than
undermines workers’ self-respect. Reduced demand for extremely low-wage
labor is a cost worth bearing to ensure decent work—and may even be an
affirmative social good.
INTRODUCTION ........................................................................................ 1544
I. EXISTING DEBATE: MINIMUM WAGE LAWS AND DISTRIBUTION .... 1549
A. Utilitarian Critiques .............................................................. 1550
B. Egalitarian Liberalism and Minimum Wage Laws ............... 1552
1. Justice as Fairness and Basics of Egalitarian
Liberalism ....................................................................... 1552
2. Egalitarian Liberals’ Criticisms of the Minimum Wage . 1554
C. Extant Defenses of the Minimum Wage ............................... 1559
* Assistant Professor of Law, Temple University James E. Beasley School of Law,
brogers@temple.edu. For helpful comments and conversations, thanks to Samuel Bagenstos, Jane
Baron, Cynthia Estlund, Michael Fischl, Willy Forbath, Craig Green, David Hoffman, Gillian
Lester, Karl Klare, Tom Lin, Martha McClusky, Fernanda Nicola, Paul Sonn, Andrew Strom,
Anna Brewer Stilz, Katherine V.W. Stone, Noah Zatz, and participants in the Temple Law Writers
Workshop and faculty workshops at Drexel Law School, the University of Richmond Law School,
and Temple Law School. Errors are of course mine alone.
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II. SOCIAL EQUALITY DEFINED AND DEFENDED .................................. 1562
III. MINIMUM WAGE LAWS AND SOCIAL EQUALITY ............................. 1570
A. Effects of Minimum Wage Laws on Workers’ Self-Respect 1571
1. Wage Rates and Self-Respect .......................................... 1571
2. Formal Legal Entitlements and Self-Respect .................. 1574
B. Incentive Effects of Minimum Wage Laws and Transfers ... 1576
1. Effects of Minimum Wage Laws on Employers’
Incentives ........................................................................ 1577
2. Incentive Effects of Transfers .......................................... 1583
3. Further Refining and Extending the Argument ............... 1586
IV. COUNTERARGUMENTS ...................................................................... 1588
A. Limits of the Minimum Wage as a Means to Social
Equality ................................................................................. 1588
B. Revisiting the Relationship Between Social Equality and
Egalitarian Liberalism ........................................................... 1592
1. How Strong Is the Liberal Case for Social Equality?. .... 1592
2. Is There an Alternative Liberal Case for Minimum
Wages? ............................................................................ 1595
CONCLUSION ........................................................................................... 1597
Introduction
In 1935, as minimum wage provisions established by President
Roosevelt’s National Recovery Administration came into effect, a journalist
asked a New England textile worker for his reaction. The response was
telling:
You can guess that the money is handy. . . . But there is something
more than the money. There is knowing that the working man don’t
stand alone against the bosses and their smart lawyers and all their
tricks. There is a government now that cares whether things is fair
for us.1
The sentiment remains remarkably common: low-wage workers often
describe the minimum wage as a matter of respect and fairness, not just
resources.2 President Obama has framed his push to raise the minimum
wage in similar terms, calling income inequality “the defining challenge of
our time” and a violation of “middle-class America’s basic bargain that if
you work hard, you have a chance to get ahead.”3 The overwhelming
1. M.D. Vincent & Beulah Amidon, NRA: A Trial Balance, SURV. GRAPHIC, July 1935, at
333, 337, reprinted in THE NEW DEAL AND THE AMERICAN PEOPLE 34, 40–41 (Frank Freidel ed.,
1964).
2. See infra section II(A)(1).
3. President Barack Obama, Remarks on the Economy (Dec. 4, 2013), in WASH. POST
(Dec. 4, 2013), http://www.washingtonpost.com/politics/running-transcript-president-obamasdecember-4-remarks-on-the-economy/2013/12/04/7cec31ba-5cff-11e3-be07-006c776266ed_story
.html.
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political popularity of the minimum wage—which transcends income
groups, political affiliation, and racial identity—may likewise reflect an
intuitive sense that a just state will promote decent wages and decent work.4
Legal academic and policy debates around the minimum wage are
bloodless in comparison, focusing almost entirely on the minimum wage’s
efficacy at redistributing wealth. For example, law and economics scholar
Daniel Shaviro has argued that the minimum wage is a perverse
redistributive tool, for it not only reduces overall efficiency but also
“destroys jobs in the low-wage sector of the economy and thus hurts many
of the people it is intended to help.”5 Shaviro therefore advocated repealing
the minimum wage and instead assisting low-wage workers through
negative income taxes or other transfers funded out of general revenues.
It is of course unsurprising that legal economists would focus upon
questions of efficiency rather than justice. What may be more surprising is
that the minimum wage has also troubled legal scholars within another
major branch of Anglo–American normative legal theory, the “egalitarian
liberalism” of heirs to John Rawls.6 (While philosophical liberalism is of
course far broader than Rawls et al., for ease of exposition this Article will
use the term “liberals” to denote Rawls and his heirs and “liberalism” to
4. See JEROLD WALTMAN, THE POLITICS OF THE MINIMUM WAGE 50 tbls.2 & 3 (2000)
(summarizing public opinion data from 1945–1996); id. at 48 (“[The public] usually favor[s]
setting the wage level higher than whatever Congress is considering at the moment.”); see also
ROBERT POLLIN ET AL., A MEASURE OF FAIRNESS: THE ECONOMICS OF LIVING WAGES AND
MINIMUM WAGES IN THE UNITED STATES 4 (2008) (noting the popularity of state- and local-level
minimum wages set above the national level); 2011 American Values Survey, PUB. RELIGION RES.
INST. (Nov. 8, 2011), http://publicreligion.org/research/2011/11/2011-american-values-survey/
(providing the results of a 2010 national poll in which two-thirds of individuals supported raising
the minimum wage to at least $10 per hour, well above the current rate of $7.25).
5. Daniel Shaviro, The Minimum Wage, the Earned Income Tax Credit, and Optimal Subsidy
Policy, 64 U. CHI. L. REV. 405, 406 (1997); see also EDMUND S. PHELPS, REWARDING WORK:
HOW TO RESTORE PARTICIPATION AND SELF-SUPPORT TO FREE ENTERPRISE 147 (reprt. 2007)
(“[I]t is impossible to understand the lingering appeal of the statutory minimum wage as a way to
widen self-support, social cohesion, and so on among the disadvantaged.”).
6. “Egalitarian liberalism” is the name commonly given to the works of John Rawls, Ronald
Dworkin, and others who seek to combine traditional liberalism’s focus on a neutral and minimal
state with an egalitarian distribution of wealth, typically defined via a “maximin” or similar
criterion that seeks to maximize the well-being or social position of the worst off in society. See
generally JOHN RAWLS, JUSTICE AS FAIRNESS: A RESTATEMENT (Erin Kelly ed., 2001)
[hereinafter RAWLS, FAIRNESS]; JOHN RAWLS, POLITICAL LIBERALISM (expanded ed. 2005)
[hereinafter RAWLS, LIBERALISM]; RONALD DWORKIN, SOVEREIGN VIRTUE: THE THEORY AND
PRACTICE OF EQUALITY (2000) [hereinafter DWORKIN, SOVEREIGN VIRTUE]; JOHN RAWLS, A
THEORY OF JUSTICE (1971) [hereinafter RAWLS, THEORY]; Ronald Dworkin, What is Equality?
Part 1: Equality of Welfare, 10 PHIL. & PUB. AFF. 185 (1981); Ronald Dworkin, What is
Equality? Part 2: Equality of Resources, 10 PHIL. & PUB. AFF. 283 (1981). Since Dworkin’s
What is Equality? articles were reprinted as Chapters 1 and 2 of Sovereign Virtue, future citations
will be to that book rather than the articles.
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denote their thought.7) Liberals insist that justice is a matter of fairness,
especially for society’s worst off.8 But some prominent liberals—including
Rawls himself—have implied that tax-and-transfer policies are preferable to
minimum wage laws as means of achieving distributive justice.9 Indeed,
liberals’ priority concern for society’s worst off may render the minimum
wage especially problematic since those with few skills or marginal labormarket connections face the greatest likelihood of job loss after a mandated
wage increase.10 A leading liberal tax scholar has, therefore, proposed a
system of unconditional cash transfers to poor citizens in part on the
grounds that doing so would “help clear the way for repealing minimumwage” laws.11
Minimum wage advocates, for their part, typically respond to such
critiques in several ways. Often they simply assume minimum wage laws
are desirable and ask how best to ensure their enforcement.12 At other
times, they draw on growing—yet still disputed—empirical evidence that
minimum wage laws do not in fact increase unemployment.13 Such
arguments turn what might be a question of first principles into an
evidentiary contest. Other advocates appeal to the dignitary values of
workplace regulations highlighted by the New England garment worker.
But they have only rarely linked those values to broader theories of
justice,14 leaving the minimum wage a bit of an academic orphan. Policy
debate around the minimum wage, which has recently become more urgent
due to President Obama’s proposal and due to recent growth in the lowwage sector,15 likewise revolves around questions of unemployment.16
7. Liberalism also includes, for example, contemporary libertarianism which rejects Rawls’s
commitment to an egalitarian distribution of social goods. See generally ROBERT NOZICK,
ANARCHY, STATE, AND UTOPIA (1974).
8. See infra subpart I(B).
9. See infra subpart I(B).
10. See Anne L. Alstott, Work vs. Freedom: A Liberal Challenge to Employment Subsidies,
108 YALE L.J. 967, 1004–09 (1999) (arguing that the minimum wage keeps wages “artificially”
high for unskilled workers and thus reduces employment opportunities).
11. Id. at 1008–09.
12. See infra subpart I(C) and section III(B)(3).
13. See infra subpart I(C) and section III(B)(3).
14. See infra subpart I(C). Professor Samuel Bagenstos is exploring similar questions in his
current work, and has defended a similar conception of equality, but does not consider its
application to the minimum wage. See Samuel R. Bagenstos, Employment Law and Social
Equality, 112 MICH. L. REV. 225 (2013); see also Noah D. Zatz, The Minimum Wage as a Civil
Rights Protection: An Alternative to Antipoverty Arguments?, 2009 U. CHI. LEGAL F. 1, 4–5
(considering the relationship between egalitarian liberalism and minimum wage laws); infra
section IV(B)(2) (discussing Zatz’s argument).
15. See Ben Casselman, Low Pay Clouds Job Growth: Unemployment Rate Falls but Hiring
Rate Slows; Quality of Positions a Concern, WALL ST. J., Aug. 3, 2013, http://online.wsj.com/
news/articles/SB10001424127887324635904578643654030630378 (“[M]ore than half the job
gains [in July 2013] were in the restaurant and retail sectors, both of which pay well under $20 an
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This is a problem for minimum wage advocates. If intuitions that the
minimum wage is a matter of justice are simply wrong or merely
conventional, then advocates should take such critiques far more seriously.
Moreover, even if minimum wage laws are here to stay, this underlying
debate has implications for a host of subsidiary questions. Those include
the level at which minimum wages should be set; whether particular
workers deserve coverage under such laws; how much states should invest
in enforcement; and which entities should be liable for violations.
Lawmakers, executives, and judges often confront such questions, and the
answers will differ depending on the underlying defensibility of the
minimum wage itself.
To focus its analysis, and to begin to move beyond existing debates,
this Article accepts for the sake of argument that minimum wage laws tend
to reduce demand for low-wage labor. To be clear, this assumption may be
counterfactual: there is significant evidence that past minimum wage
increases have not led to job losses.17 But arguments based on such
evidence are essentially empirical, and as Paul Samuelson once wrote, “it
takes a theory to kill a theory; facts can only dent a theorist’s hide.”18
Moreover, even if minimum wages will not increase unemployment if set
within traditional limits, at a certain wage rate they would undoubtedly do
hour on average.”); Editorial, Fast-Food Fight, N.Y. TIMES, Aug. 7, 2013, http://www.nytimes
.com/2013/08/08/opinion/fast-food-fight.html (observing that “lower-wage occupations have
proliferated in the past several years”); James Surowiecki, The Pay Is Too Damn Low, NEW
YORKER, Aug. 12, 2013, http://www.newyorker.com/talk/financial/2013/08/12/130812ta_
talk_surowiecki (reporting that today’s low-wage workers are on average better educated, older,
and responsible for a larger proportion of their family’s income than in the past).
16. See Jared Bernstein, The Minimum Wage and the Laws of Economics, ECONOMIX, N.Y.
TIMES (Dec. 4, 2013, 12:01 AM), http://economix.blogs.nytimes.com/2013/12/04/the-minimumwage-and-the-laws-of-economics/ (noting that if the minimum wage increased unemployment,
“we’d probably know”); Laura D’Andrea Tyson, Raising the Minimum Wage: Old Shibboleths,
New Evidence, ECONOMIX, N.Y. TIMES (Dec. 13, 2013, 12:01 AM), http://economix.blogs
.nytimes.com/2013/12/13/raising-the-minimum-wage-old-shibboleths-new-evidence/
(summarizing research finding no substantial link between increased minimum wages and
unemployment); Arindrajit Dube, The Minimum We Can Do, OPINIONATOR, N.Y. TIMES
(Nov. 30, 2013, 2:25 PM), http://opinionator.blogs.nytimes.com/2013/11/30/the-minimum-wecan-do/ (same). Minimum wage opponents have continued to sound alarms over President
Obama’s proposal to raise the minimum wage, and even some prominent Democratic economists
have urged caution. See Damian Paletta & Jon Hilsenrath, Bid on Minimum Wage Revives Issue
that Has Divided Economists, WALL ST. J., Feb. 12, 2013, http://online.wsj.com/news/articles/
SB10001424127887323511804578300702588937498 (“President Barack Obama’s proposal . . . is
likely to rekindle debates over whether the measure helps or hurts low-income workers.”);
Christina D. Romer, The Business of the Minimum Wage, N.Y. TIMES, Mar. 2, 2013, http://www
.nytimes.com/2013/03/03/business/the-minimum-wage-employment-and-income-distribution
.html?pagewanted=all (“The economics of the minimum wage are complicated, and it’s far from
obvious what an increase would accomplish.”).
17. See infra subpart I(C).
18. Shaviro, supra note 5, at 449 (quoting DAVID CARD & ALAN B. KRUEGER, MYTH AND
MEASUREMENT: THE NEW ECONOMICS OF THE MINIMUM WAGE 355 (1995)).
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so. Clarifying the social goods advanced by minimum wage laws will help
in assessing whether their costs are worth bearing. What is needed is a
nonutilitarian defense of minimum wage laws, one that holds even if they
reduce demand for low-wage labor.
This Article takes up that mantle, defending the minimum wage as a
matter of justice.19 It builds on well-established arguments that a just state
must not just redistribute resources but also ensure that “people stand in
relations of equality to others.”20 This requires combatting status
inequalities that result from gender, race, and class differentiation. This
ideal of “social equality” is most commonly associated with leftcommunitarian and republican theories of justice, but it is also central to
certain strands of egalitarian liberalism, with Rawls himself arguably a
leading proponent.21 Among other things, a society committed to social
equality will seek to ensure decent work—work that enhances rather than
undermines workers’ self-respect and social standing.
Minimum wage laws advance this goal in several interrelated ways.22
First and foremost, minimum wage laws increase workers’ hourly pay; this
enhances workers’ self-respect by improving their material lives and by
increasing the social value attached to their labor. Second, minimum wage
19. Three notes on the role of justice in this Article are in order. First, as will be clear, this
Article uses the term “justice” in the Rawlsian sense, even if its overall analysis is not necessarily
Rawlsian. It understands justice as a characteristic of social institutions, not individual morality,
and views the basic structure of society as the primary subject of justice. See RAWLS, THEORY,
supra note 6, at 7 (“The basic structure [of society] is the primary subject of justice because its
effects are so profound and present from the start [of our lives].”). Second, this Article’s
argument is limited to relatively advanced industrial or post-industrial economies characterized by
wage labor; I take no position on whether minimum wage laws are just in preindustrial economies,
for example, or in future economies that do not rely upon employment relationships. Finally, it is
possible that a set of alternative labor-market regulations could render minimum wage laws
superfluous. One can imagine, for example, a country that need not adopt a formal minimum
wage because robust labor laws enabled all workers to bargain for relatively high wages and to
prevent employers from exerting undue power over them. This Article assumes, then, a society in
which other background legal institutions render minimum wage laws structurally necessary to
achieve decent wages and formal legal entitlements for some class of unskilled workers.
20. Elizabeth S. Anderson, What Is the Point of Equality?, 109 ETHICS 287, 288–89 (1999);
see also MICHAEL WALZER, SPHERES OF JUSTICE: A DEFENSE OF PLURALISM AND EQUALITY
xii–iii (1983) (“The aim of political egalitarianism is a society free from domination.”). See
generally Anderson, supra; Joshua Cohen, Democratic Equality, 99 ETHICS 727 (1989); Norman
Daniels, Democratic Equality: Rawls’s Complex Egalitarianism, in THE CAMBRIDGE
COMPANION TO RAWLS 241 (Samuel Freeman ed., 2003); Samuel Scheffler, What Is
Egalitarianism?, 31 PHIL. & PUB. AFF. 5 (2003); Iris Marion Young, Taking the Basic Structure
Seriously, 4 PERSP. ON POL. 91 (2006).
21. See infra Part II and subpart IV(A); see also RAWLS, FAIRNESS, supra note 6, at 131
(arguing that material redistribution is important because “[s]ignificant political and economic
inequalities are often associated with inequalities of social status that encourage those of lower
status to be viewed both by themselves and by others as inferior”).
22. Assuming, as will generally be done for purposes of argument, that businesses follow the
law. But see infra subpart IV(A).
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laws alter workplace power relationships. Such laws enable workers to call
upon the state to protect them against certain employer demands and require
employers themselves to bear duties toward workers rather than mediating
all distribution through the state. These rights and duties are meaningful
independent of their effects on distribution for reasons captured nicely by
the textile-worker quote above. Third, minimum wage laws alter the
economics of low-wage employment. They deliver additional resources to
low-wage workers as a group, and they force employers and consumers to
internalize some of the social costs of low-wage work.23
Minimum wage laws, in short, help ensure more egalitarian workbased social structures. This analysis thus turns one common line of
critique on its head: rather than a tax on low-wage work, the minimum
wage can be analogized to a tax on the class and status benefits of
employing or consuming the products of low-wage labor. Minimum wage
laws’ effects on unemployment should therefore no longer give rise to a
presumption against them but rather should be seen as a collateral cost to be
managed—perhaps through transfers, or perhaps through other policies that
enhance employment opportunities.24 In fact, marginally reduced demand
for extremely low-wage labor may be an affirmative good insofar as it
ensures more egalitarian social relationships.
Part I, below, summarizes the existing legal academic debate around
minimum wage laws, unpacking certain utilitarian and liberal scholars’
skepticism. Part II defines and defends social equality as an alternative
metric of justice. Part III traces the relationship between minimum wage
laws and social equality. Part IV then takes up various important
counterarguments.
I.
Existing Debate: Minimum Wage Laws and Distribution
Legal academic debate on minimum wage laws is largely framed
around a simple question: what policy or policies will best increase the
resources available to the working poor?25 While the menu of policy
options is wide, the most important alternatives to minimum wages all
involve taxation and transfer of funds directly to the working poor. These
include employment subsidies, in which the government would pay a
23. See infra Part III.
24. See infra section III(B)(3).
25. See DAVID NEUMARK & WILLIAM A. WASCHER, MINIMUM WAGES 3 (2008) (“[W]e see
the principal intent of the minimum wage as helping to raise incomes of low-income families.”);
Shaviro, supra note 5, at 407, 457–61 (arguing that three objectives of “low-wage subsidies,”
including minimum wages, are progressive redistribution, encouraging work by the poor, and
reducing the transfer system’s discouragement of work at the margins); Zatz, supra note 14
(noting that both critics and advocates of the minimum wage “basically agree that the minimum
wage should be evaluated as an antipoverty program”).
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portion of a low-wage worker’s salary;26 the earned income tax credits
(EITCs) or other negative income taxes, which deliver additional meanstested resources to the working poor and are gradually phased out via
positive tax rates;27 and “demogrant,”28 “basic income”29 or “stakeholder”30
programs, under which all citizens would receive a cash grant either
annually or at some point during their lives. While the differences among
these proposals are important, and will be noted in places, they will
generally be treated together because all have a similar institutional form
(tax-and-transfer rather than regulate), and because all have advantages over
the minimum wage as means of redistributing resources.
Subpart I(A) summarizes the utilitarian case against minimum wage
laws and for direct transfers, as reflected in law and economics scholarship.
Subpart I(B) summarizes liberal scholars’ arguments for the same policy
choice. Subpart I(C) discusses minimum wage defenders’ extant responses.
A.
Utilitarian Critiques
The most important critiques of the minimum wage arise from
neoclassical economics31 and have been incorporated most prominently into
legal academic debates around the minimum wage by Daniel Shaviro.32
Shaviro’s analysis is basically utilitarian: he seeks to maximize overall
utility within a society and takes material resources to be the basic measure
thereof.33 In a utilitarian framework, even if redistributing wealth to the
26. See Phelps, supra note 5.
27. See Shaviro, supra note 5, at 408 (discussing the EITC); id. at 410 (discussing other
negative income taxes).
28. See Alstott, supra note 10, at 1056–58 (proposing the EITC or a demogrant); Shaviro,
supra note 5, at 469–73 (discussing 1970s proposals for a demogrant in the United States and
comparing the EITC and negative income tax).
29. See generally PHILIPPE VAN PARIJS, REAL FREEDOM FOR ALL: WHAT (IF ANYTHING)
CAN JUSTIFY CAPITALISM (1995) (proposing a basic income program).
30. See generally BRUCE ACKERMAN & ANNE ALSTOTT, THE STAKEHOLDER SOCIETY
(1999) (proposing a one-time “stakeholder” grant).
31. See, e.g., George J. Stigler, The Economics of Minimum Wage Legislation, 36 AM. ECON.
REV. 358 (1946) (examining the economic effects of minimum wage legislation and reviewing
alternative policies).
32. Shaviro, supra note 5, at 407–08.
33. While Shaviro does not specifically identify himself as a utilitarian, this is certainly the
overall tenor of his argument, and others have specifically described his analysis as utilitarian.
See Alstott, supra note 10, at 973 & n.24 (describing Shaviro as utilitarian); see also Amartya Sen,
Utilitarianism and Welfarism, 76 J. PHIL. 463, 463–64 (1979) (“[A]ll variants of utilitarianism . . .
identif[y] the goodness of a state of affairs (or outcome) with the sum total of individual utilities
in that state . . . .”). Shaviro’s approach is also largely consistent with welfarist approaches to
policy analysis, see Louis Kaplow & Stephen Shavell, Fairness Versus Welfare: Notes on the
Pareto Principle, Preferences, and Distributive Justice, 32 J. LEGAL STUD. 331, 332 (2003)
(“Under a welfarist approach . . . one first determines how a policy affects each individual’s wellbeing and then makes an aggregate (distributive) judgment based exclusively on this information
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working poor is a good idea—due, for example, to the social costs of
poverty or the declining marginal utility of resources—the minimum wage
is a suboptimal way of doing so for two interrelated reasons.
First, the minimum wage is not well targeted at the working poor in
the first place. It applies to covered workers regardless of their background
family wealth, their annual income (including whether their work is
seasonal or year-round), the extent to which they work overtime, whether
they have a second job, their family status and wealth, and myriad other
factors.34 If policymakers aim to increase the resources available to the
working poor, targeted transfers are clearly a superior policy choice.
Second, economically speaking, the minimum wage is “equivalent to a
wage subsidy to low-wage employees, financed by a tax on low-wage
employers.”35 Its perversity is thus apparent: even if a wage subsidy is a
good idea, a tax on low-wage employers will reduce demand for low-wage
labor. Granted, the reduction in employment or work hours may be less
than the increase in wages due to demand elasticity for low-wage labor,
such that the minimum wage may enable low-wage workers to capture a
greater proportion of surplus.36 But this only highlights another perversity
of the minimum wage: it will always be Kaldor–Hicks inefficient. By
creating a cartel among low-wage employees, minimum wage laws—like
all price controls—“impos[e] a deadweight loss on society.”37 Net social
product will be lower. To maximize the resources available to the working
poor, in this view, it is best to set private law and market rules so as to
create the maximum wealth possible and then to redistribute as desired
through taxation and transfers.38
Granted, it is unclear whether the perversity critiques accurately reflect
the effects of the minimum wage in real labor markets.39 Nevertheless, to
pertaining to individuals’ welfare.”), and differences between these approaches are irrelevant for
present purposes.
34. See Zatz, supra note 14, at 9–12; see also Shaviro, supra note 5, at 434 (citing Stigler,
supra note 31, at 362–63) (summarizing the factors that lead to divergence between minimum
wage workers and individuals living in poverty).
35. Shaviro, supra note 5, at 407.
36. This will depend upon market conditions. As an example, however, Shaviro cites a longheld consensus among economists that a 10% hike would decrease total work hours by 1%–3%
and that a 25% hike would reduce such hours by 3.5%–5.5%. Id. at 436–37.
37. Id. at 416 (citing RICHARD A. POSNER, ECONOMIC ANALYSIS OF LAW 287 (4th ed.
1992)).
38. Id. at 474 (“The earned income tax credit . . . is considerably better than the minimum
wage as a device for both progressive redistribution and encouraging workforce participation
among the poor.”); Stigler, supra note 31, at 365 (advocating negative income taxes and cash or
in-kind grants to the poor). See generally Louis Kaplow & Steven Shavell, Why the Legal System
Is Less Efficient than the Income Tax in Redistributing Income, 23 J. LEGAL STUD. 667 (1994).
39. See infra subpart III(B) (discussing incentive effects of minimum wage laws). Compare
CARD & KRUEGER, supra note 19, at 13–17 (finding that employment tended either to remain
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focus the argument, this Article will assume that the neoclassical model is
essentially correct—though it will highlight certain idiosyncrasies of labor
markets that complicate, but do not undermine, that basic account.40
B.
Egalitarian Liberalism and Minimum Wage Laws
Legal scholars operating within egalitarian liberalism have also often
been skeptical toward the minimum wage. This subpart summarizes their
arguments.
1. Justice as Fairness and Basics of Egalitarian Liberalism.—Since
the 1971 publication of John Rawls’s A Theory of Justice (Theory),
egalitarian liberalism (again, “liberalism” for ease of exposition) has
become the dominant left-leaning Anglo–American normative political
philosophy.41 Rawls argued that classical liberalism and utilitarianism are
unconvincing theories of justice, in part because both tolerate economic
inequalities that unfairly limit citizens’ autonomy.42 His own theory, which
he called “justice as fairness,” would require the state first to ensure equal
stable or even to increase, at least within studied industries, following minimum wage increases),
and Arindrajit Dube et al., Minimum Wage Effects Across State Borders: Estimates Using
Contiguous Counties, 92 REV. ECON. & STAT. 945, 962 (2010) (finding that higher minimum
wages do not have a detectable effect upon low-wage employment in the restaurant industry), with
NEUMARK & WASCHER, supra note 25, at 39 (arguing that a review of studies of the minimum
wage’s effects confirms the standard model’s predictions), and Shaviro, supra note 5, at 435–59
(criticizing Card and Krueger’s methodology, their models, and their conclusions). See generally
CONG. BUDGET OFFICE, PUB. NO. 4856, THE EFFECTS OF A MINIMUM-WAGE INCREASE ON
EMPLOYMENT AND FAMILY INCOME app. B (2014), available at http://www.cbo.gov/
sites/default/files/cbofiles/attachments/44995-MinimumWage.pdf (providing a bibliography of
recent empirical research on the effects of minimum wage laws on employment levels).
40. Those include the role of fairness norms in labor-market behavior and businesses’
differential responses to a minimum wage mandate. See infra Part II.
41. Summarizing Rawls’s theory is impossible, and the account infra disregards certain
influential elements thereof. Those include: his decisional process from behind a “veil of
ignorance,” which, Rawls emphasized, is “a purely hypothetical situation,” designed to “account
for our moral judgments and . . . to explain our having a sense of justice,” RAWLS, THEORY, supra
note 6, at 118, 120; and his argument that liberty and equality are both elements of deeper Kantian
commitments to individual autonomy and therefore that his overall theory is nonconsequentialist,
see generally John Rawls, Kantian Constructivism in Moral Theory: Rational and Full Autonomy,
77 J. PHIL. 515 (1980).
42. See RAWLS, FAIRNESS, supra note 6, at 95–96 (comparing two principles of justice to the
principle of average or aggregate utility); RAWLS, THEORY, supra note 6, at 65, 75 (arguing that
the difference principle requires a system of “democratic equality” rather than the system of
“natural liberty” (classical or laissez-faire liberalism) or “liberal equality” (akin to welfare-state
capitalism)). Utilitarianism had the added fault—less important for present purposes—of
allowing infringements of individual liberties if doing so would increase net utility. See RAWLS,
THEORY, supra note 6, at 27 (“Utilitarianism does not take seriously the distinction between
persons.”).
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basic liberties, then to ensure distributive justice, and only then to consider
questions of aggregate utility or efficiency.43
Rawls’s focus upon distributive justice, as encapsulated in his
“difference principle,” is for present purposes the most important aspect of
his theory. That principle permits inequalities in what Rawls called
“primary social goods” only if such inequalities benefit the worst off in
society, for example by incentivizing talented individuals to develop and
deploy their own skills. Primary social goods are things that “normally
have a use whatever a person’s rational plan of life,”44 including income
and wealth; positions of responsibility; and—likely most important,
according to Rawls—“[t]he social bases of self-respect.”45 The difference
principle is therefore similar to a “maximin” criterion of distributive justice,
so called because it requires maximizing the amount of some good
possessed by the social group with the least of it.46 Nevertheless, Rawls
emphasized that the difference principle did not necessarily instantiate a
maximin criterion.47 It is more fundamentally “a principle of reciprocity,”
an injunction to organize basic institutions so as to ensure self-respect and
autonomy for all.48
Rawls held that two forms of society could satisfy these principles:
market socialism and what he called “property-owning democracy,” a
43. Rawls explains:
First Principle [(the liberty principle):]
Each person is to have an equal right to the most extensive total system of equal
basic liberties compatible with a similar system of liberty for all.
Second Principle [(the equality principle):]
Social and economic inequalities are to be arranged so that they are both:
(a) to the greatest benefit of the least advantaged [the “difference principle”] . . .
and
(b) attached to offices and positions open to all under conditions of fair equality of
opportunity [the “fair equality of opportunity principle”].
RAWLS, THEORY, supra note 6, at 302. Rawls ranked the principles in lexical order, such that a
principle does not come into play until those before it are satisfied. Id. at 302–03. Thus, the first
principle is prior to the second principle; within the second principle, fair equality of opportunity
is prior to the difference principle; and the second principle is prior to considerations of efficiency,
utility, or welfare maximization.
44. Id. at 62.
45. RAWLS, FAIRNESS, supra note 6, at 58–59 (defining and enumerating primary social
goods); see also RAWLS, THEORY, supra note 6, at 440 (“[P]erhaps the most important primary
good is that of self-respect.”).
46. See WILL KYMLICKA, CONTEMPORARY POLITICAL PHILOSOPHY: AN INTRODUCTION 66–
67 (2d ed. 2002) (interpreting the difference principle as maximin). This argument brackets
alternative formulations of liberal principles of distributive justice such as prioritarianism, “which
would attach greater weight to the interests of the less well off, but would still allow major gains
to the affluent to outweigh minor losses to the poor.” Id. at 66.
47. RAWLS, FAIRNESS, supra note 6, at 94–95 (clarifying that “the reasoning for the
difference principle does not rely on [the maximin] rule”).
48. Id. at 64.
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radical form of capitalism that would place in each citizen’s hands
“sufficient productive means for them to be fully cooperating members of
society on a footing of equality.”49 But Rawls did not describe what
property-owning democracy would look like in practice nor how to
implement it.50 In fact, aside from endorsing “a social minimum covering
at least the basic human needs,” such as public education, social insurance,
and cash supports for the poor,51 Rawls gave few details regarding optimal
institutions of distributive justice or other matters of public policy. This is
in part a structural element of his theory: he did not seek to provide a
blueprint for social justice, but rather to formalize a view of justice that
could be embraced by “opposing religious, philosophical and moral
doctrines likely to thrive over generations in a . . . constitutional democracy,
where the criterion of justice is that political conception itself.”52 Rawls
therefore focused upon “ideal” or “strict compliance” theory, on the view
that describing a perfectly just society was a necessary first step to
addressing present-day injustices.53 The laws and regulations required to
satisfy the difference principle, he held, would need to be worked out in
individual societies based upon their own traditions and degrees of
economic development.54
2. Egalitarian Liberals’ Criticisms of the Minimum Wage.—Rawls’s
Theory has profoundly influenced legal scholarship in myriad fields
including tax,55 welfare and poverty law,56 family law,57 constitutional
49. Id. at 140; see also id. at 114 (clarifying that the basic right to property does not require a
right to the means of production or to participate in the control of the means of production).
50. See KYMLICKA, supra note 46, at 90–91 (noting that aside from inheritance taxation,
“Rawls gives us no idea of how to implement such a property-owning democracy”).
51. RAWLS, FAIRNESS, supra note 6, at 162–63.
52. John Rawls, The Idea of an Overlapping Consensus, 7 OXFORD J. LEGAL STUD. 1, 1
(1987).
53. See RAWLS, THEORY, supra note 6, at 8–9 (distinguishing ideal or “strict compliance”
theory from nonideal or “partial compliance” theory).
54. For example, while Rawls argued that a social minimum covering basic needs would be a
constitutional essential, he held that the difference principle should not be accorded constitutional
status since individuals could disagree in good faith regarding what it required. RAWLS,
FAIRNESS, supra note 6, at 47–49.
55. See Alstott, supra note 10, at 980–81 (including Rawls on a short list of liberal scholars
supporting a basic income). Compare Anne L. Alstott, The Uneasy Liberal Case Against Income
and Wealth Transfer Taxation: A Response to Professor McCaffery, 51 TAX L. REV. 363, 364
(1996) (summarizing Rawls’s justifications for the estate tax and progressive income taxation),
with Edward J. McCaffery, The Uneasy Case for Wealth Transfer Taxation, 104 YALE L.J. 283,
291–97 (1994) (critiquing Rawls’s justifications for the estate tax).
56. See generally Frank I. Michelman, In Pursuit of Constitutional Welfare Rights: One View
of Rawls’ Theory of Justice, 121 U. PA. L. REV. 962 (1973).
57. See, e.g., SUSAN MOLLER OKIN, JUSTICE, GENDER, AND THE FAMILY 89–109 (1989)
(examining the implications of Rawls’s theory for gender, women, and the family).
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law,58 and private law.59 Yet relatively little has been written about
liberalism’s implications for the minimum wage and other basic labormarket regulations,60 and various liberals who have treated the minimum
wage have tended to join utilitarians in criticizing it.61
Rawls himself set the template. In Theory he stated that once a robust
social minimum is in place, “it may be perfectly fair that the rest of total
income be settled by the price system” and that addressing needs through
transfers would generally “be more effective than trying to regulate income
by minimum wage standards, and the like.”62 This implies that, once the
difference principle is satisfied, utilitarian critiques of the minimum wage
may properly influence subsequent policy analysis. Yet the argument is
stated offhandedly, akin to dicta, making its precise contours unclear. For
example, Rawls does not assert that the minimum wage is inconsistent with
liberal principles, just that it is less “effective” than transfers at ensuring a
fair distribution, and he only states that eliminating the minimum wage
“may” be fair, leaving open the possibility that it is defensible, whether to
equalize resources or on other grounds.63
A passage in Rawls’s later work has led some to ask whether
minimum wage laws are inconsistent with liberal commitments to
58. See generally Frank I. Michelman, Justice as Fairness, Legitimacy, and the Question of
Judicial Review: A Comment, 72 FORDHAM L. REV. 1407 (2004).
59. See infra notes 72–78 and accompanying text.
60. See Seanna Valentine Shiffrin, Race, Labor, and the Fair Equality of Opportunity
Principle, 72 FORDHAM L. REV. 1643, 1643 (2004) (arguing that “the precarious presence of race
and labor in Rawls’s the...
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