City Limits: What Do Local-Area Minimum Wages Do?

41 Pages Posted: 14 Oct 2020 Last revised: 24 Apr 2021

See all articles by Arindrajit Dube

Arindrajit Dube

University of Massachusetts Amherst

Attila Lindner

University College London - Department of Economics

Date Written: October 2020

Abstract

Cities are increasingly setting their own minimum wages, and this trend has accelerated sharply in recent years. While in 2010 there were only three cities with their own minimum wages exceeding the state or federal standard, by 2020 there were 42. This new phenomenon raises the question: is it desirable to have city-level variation in minimum wage polices? We discuss the main trade-offs emerging from local variation in minimum wage polices and evaluate their empirical relevance. First, we document what type of cities raise minimum wages and we discuss how these characteristics can potentially impact the effectiveness of city-level minimum wage policies. Second, we summarize the evolving evidence on city-level minimum wage changes and provide some new evidence of our own. Early evidence suggests that the impact of the policy on wages and employment to date has been broadly similar to the evidence on state and federal-level minimum wage changes. Overall, city-level minimum wages seem to be able to tailor the policy to local economic environment without imposing substantial distortions in allocation of labor and businesses across locations.

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Suggested Citation

Dube, Arindrajit and Lindner, Attila, City Limits: What Do Local-Area Minimum Wages Do? (October 2020). NBER Working Paper No. w27928, Available at SSRN: https://ssrn.com/abstract=3709618

Arindrajit Dube (Contact Author)

University of Massachusetts Amherst ( email )

Attila Lindner

University College London - Department of Economics ( email )

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