Minimum Wage Employment Effects and Labor Market Concentration

45 Pages Posted: 14 Jan 2020

See all articles by Jose Azar

Jose Azar

Princeton University - Department of Economics

Emiliano Huet-Vaughn

UCLA

Ioana Elena Marinescu

University of Pennsylvania - School of Social Policy & Practice; National Bureau of Economic Research (NBER)

Bledi Taska

Burning Glass Technologies

Till Von Wachter

University of California, Los Angeles (UCLA) - Department of Economics

Date Written: December 2019

Abstract

Why is the employment effect of the minimum wage frequently found to be close to zero? Theory tells us that when wages are below marginal productivity, as with monopsony, employers are able to increase wages without laying off workers, but systematic evidence directly supporting this explanation is lacking. In this paper, we provide empirical support for the monopsony explanation by studying a key low-wage retail sector and using data on labor market concentration that covers the entirety of the United States with fine spatial variation at the occupation-level. We find that more concentrated labor markets - where wages are more likely to be below marginal productivity - experience significantly more positive employment effects from the minimum wage. While increases in the minimum wage are found to significantly decrease employment of workers in low concentration markets, minimum wage-induced employment changes become less negative as labor concentration increases, and are even estimated to be positive in the most highly concentrated markets. Our findings provide direct empirical evidence supporting the monopsony model as an explanation for the near-zero minimum wage employment effect documented in prior work. They suggest the aggregate minimum wage employment effects estimated thus far in the literature may mask heterogeneity across different levels of labor market concentration.

Keywords: labor markets, minimum wage, monopsony, oligopsony

JEL Classification: J08, J23, J42, J80

Suggested Citation

Azar, Jose and Huet-Vaughn, Emiliano and Marinescu, Ioana Elena and Taska, Bledi and Von Wachter, Till, Minimum Wage Employment Effects and Labor Market Concentration (December 2019). CEPR Discussion Paper No. DP14239, Available at SSRN: https://ssrn.com/abstract=3518577

Jose Azar (Contact Author)

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

HOME PAGE: http://www.princeton.edu/~jazar/

Emiliano Huet-Vaughn

UCLA ( email )

4284 School of Public Affairs
Los Angeles, CA 90095
United States

Ioana Elena Marinescu

University of Pennsylvania - School of Social Policy & Practice ( email )

3701 Locust Walk
Philadelphia, PA 19104-6214
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Bledi Taska

Burning Glass Technologies ( email )

One Lewis Wharf
Boston, MA 02110
United States

Till Von Wachter

University of California, Los Angeles (UCLA) - Department of Economics ( email )

8283 Bunche Hall
Los Angeles, CA 90095-1477
United States

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