Introduction, Thesis Statement, and Annotated Bibliography

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For this assignment, review the Annotated Bibliography Formatting GuidelinesPreview the documentView in a new window and address the following prompts: •Introductory Paragraph to Topic: Refer to the Final Argumentative Essay guidelines for your topic selection. Write an introductory paragraph with at least 150 words, which clearly explains the topic, the importance of further research, and ethical implications. •Thesis statement: Write a direct and concise thesis statement, which will become the solution to the problem that you will argue or prove in the Week Five Final Argumentative Essay. A thesis statement should be a declarative statement that makes one point in 25 words or less. The thesis statement must appear at the end of the introductory paragraph. •Annotated Bibliography: Develop an annotated bibliography to indicate the quality of the sources you have read. For each annotation, you need to summarize in your own words how the source contributes to the solution of the global societal issue. Your annotation should be one to two paragraphs long (150 words or more) and fully address the purpose, content, evidence, and relation to other sources you found on this topic. The annotated bibliography must include no less than five scholarly sources that will be used to support the major points of the Final Argumentative Essay. Critical thinking skills need to be demonstrated by accurately interpreting evidence used to support various positions of the topic. The Introduction, Thesis Statement, and Annotated Bibliography Assignment •Must be 1,000 – 1,250 words in length (excluding the title and reference pages) and formatted according to APA style as outlined in the Ashford Writing Center (Links to an external site.)Links to an external site.. •Must include a separate title page with the following: ◦Title of paper ◦Student’s name ◦Course name and number ◦Instructor’s name ◦Date submitted •Must use at least five scholarly sources. •Must document all sources in APA style as outlined in the Ashford Writing Center

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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 1172 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. 1174 ILR REVIEW 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. 1176 ILR REVIEW 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 1178 ILR REVIEW 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 1180 ILR REVIEW 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 ILR REVIEW 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 ILR REVIEW 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 ILR REVIEW 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. References Aten, Bettina H., and Eric B. Figueroa. 2014. Regional price parities and real regional income for the United States: 2008-2012. Paper presented at the 33rd General Conference of the International Association for Research in Income and Wealth, Rotterdam, The Netherlands, August 24–30. Baker, Michael, Dwayne Benjamin, and Shuchita Stanger. 1999. The highs and lows of the minimum wage effect: A time-series cross-section study of the Canadian law. Journal of Labor Economics 17(2): 318–50. Card, David E. 1992a. Do minimum wages reduce employment? A case study of California, 1987–1989. Industrial and Labor Relations Review 46(1): 38–54. ———. 1992b. Using regional variation in wages to measure the effects of the federal minimum wage. Industrial and Labor Relations Review 46(1): 22–37. Card, David E., and Alan B. Krueger. 1994. Minimum wages and employment: A case study of the fast-food industry in New Jersey and Pennsylvania. American Economic Review 84(4): 772–93. ———. 1995. Myth and Measurement. Princeton, NJ: Princeton University Press. Currie, Janet, and Bruce C. Fallick. 1996. The minimum wage and the employment of youth: Evidence from the NLSY. Journal of Human Resources 31(2): 404–28. Deere, Donald, Kevin M. Murphy, and Finis Welch. 1995. Employment and the 1990–1991 minimum-wage hike. American Economic Review Papers and Proceedings 85(2): 232–37. DiNardo, John, Nicole Fortin, and Thomas Lemieux. 1996. Labor market institutions and the distribution of wages: 1973–1992: A semi-parametric approach. Econometrica 65(5): 1001–44. Gramlich, Edward M. 1976. Impact of minimum wages on other wages, employment, and family incomes. Brookings Papers on Economic Activity 2: 409–51. Katz, Lawrence F., and Alan B. Krueger. 1992. The effect of the minimum wage on the fast food industry. Industrial and Labor Relations Review 46(1): 6–21. Koenker, Roger, and Gilbert Bassett. 1978. Regression quantiles. Econometrica 46(1): 33–50. Lang, Kevin, and Shulamit Kahn. 1998. The effect of minimum-wage laws on the distribution of employment: Theory and evidence. Journal of Public Economics 69: 67–82. 1190 ILR REVIEW Madrian, Brigitte C., and Lars J. Lefgren. 1999. A note on longitudinally matching Current Population Survey (CPS) respondents. NBER Working Paper No. T0247. Cambridge, MA: National Bureau of Economic Research. Neumark, David, and William Wascher. 1992. Employment effects of minimum and subminimum wages: Panel data on state minimum wage laws. Industrial and Labor Relations Review 46(1): 55–81. ———. 1995. Reconciling the evidence on employment effects of minimum wages: A review of our research findings. Federal Reserve Board Finance and Economics Discussion Series no. 95-53. ———. 2007. Minimum wages and employment. Foundations and Trends in Microeconomics 3(1–2): 1–182. Neumark, David, Mark Schweitzer, and William Wascher. 2004. Minimum wage effects throughout the wage distribution. Journal of Human Resources 39(2): 425–50. Schelling, Thomas 1960. The Strategy of Conflict. Cambridge, MA: Harvard University Press. Shelkova, Natalya Y. 2008. Low-wage labor markets and the power of suggestion. UConn Economics Working Paper No. 200833. Spriggs, William E., and Bruce W. Klein. 1994. Raising the Floor: The Effects of the Minimum 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 copyright holder's express written permission. However, users may print, download, or email articles for individual use. ROGERS.FINAL.OC (DO NOT DELETE) 5/9/2014 11:11 AM 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. ROGERS.FINAL.OC (DO NOT DELETE) 1544 5/9/2014 11:11 AM Texas Law Review [Vol. 92:1543 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. ROGERS.FINAL.OC (DO NOT DELETE) 2014] 5/9/2014 11:11 AM Justice at Work 1545 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. ROGERS.FINAL.OC (DO NOT DELETE) 1546 5/9/2014 11:11 AM Texas Law Review [Vol. 92:1543 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 ROGERS.FINAL.OC (DO NOT DELETE) 2014] 5/9/2014 11:11 AM Justice at Work 1547 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)). ROGERS.FINAL.OC (DO NOT DELETE) 1548 5/9/2014 11:11 AM Texas Law Review [Vol. 92:1543 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). ROGERS.FINAL.OC (DO NOT DELETE) 2014] 5/9/2014 11:11 AM Justice at Work 1549 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”). ROGERS.FINAL.OC (DO NOT DELETE) 1550 5/9/2014 11:11 AM Texas Law Review [Vol. 92:1543 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 ROGERS.FINAL.OC (DO NOT DELETE) 2014] 5/9/2014 11:11 AM Justice at Work 1551 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 ROGERS.FINAL.OC (DO NOT DELETE) 1552 5/9/2014 11:11 AM Texas Law Review [Vol. 92:1543 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.”). ROGERS.FINAL.OC (DO NOT DELETE) 2014] 5/9/2014 11:11 AM Justice at Work 1553 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. ROGERS.FINAL.OC (DO NOT DELETE) 1554 5/9/2014 11:11 AM Texas Law Review [Vol. 92:1543 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). ROGERS.FINAL.OC (DO NOT DELETE) 2014] 5/9/2014 11:11 AM Justice at Work 1555 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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Running head: MINIMUM WAGE

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Minimum Wage
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MINIMUM WAGE

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Minimum Wage

This paper will concentrate on the impact the increase in minimum wage will have on
low-income earners and the minorities. It will discuss this will assist them in earning a higher
income equality. The secondary employment market is overpopulated by minorities who often
occupy lower paying employment positions. The increase in the minimum wage will definitely
better the lives of these people. Increasing the minimum wage to match the present living wage,
will reduce the gap on earnings inequality. Certainly, the minimum wage act is a contentious
issue, and its impact on employment has raised many questions. The studies on this issues
present different findings, with some claiming there is no effect and other showing little effect.
In order, to understand this issue better, there is need to conduct further research. This issue also
raises some ethical concerns. Companies may opt to reduce the remuneration expenses by hiring
less which would lead to unemployment. However, there are other ways of cutting cost that these
companies can use.

Thesis Statement: An increase in the minimum wage will result in several benefits for
the low-income earners and the minorities and will reduce the revenue inequality gap which
currently exists in the United States

Annotated Bibliography

Burke, D., Miller, S., & Long, J. (2010). Minimum Wage and Unemployment Rates: A Study of
Contiguous Counties. Gonz. L. Rev., 46, 661.
Burke, Miller & Long studies the e...


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