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The Effect of the New Minimum Wage Law in a Low-Wage Labor Market

Author

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  • Lawrence F. Katz

    (Harvard University and NBER)

  • Alan B. Krueger

    (Princeton University and NBER)

Abstract

After nearly a decade without change, legislation that affected the Federal minimum wage in two significant ways took effect on April 1, 1990: (1) the hourly minimum wage was increased from $3.35 to $3.80; and (2) employers were enabled to pay a subminimum wage to teenage workers for up to six months. This paper examines the effect of these changes in the minimum wage law in a low-wage labor market using data from a survey of 167 fast food restaurants in Texas. We draw three main conclusions. First, our survey results indicate that less than 2 percent of fast food restaurants have taken advantage of the youth subminimum, even though 73 percent of the sampled restaurants paid a starting wage of less than $3.80 before the new minimum wage took effect. Second, we find that a sizeable minority of fast food restaurants increased wages for workers by an amount exceeding that necessary to comply with the higher minimum wage. Third, the majority of fast food restaurants in Texas that were directly affected by the minimum wage increase did not report that they attempted to offset their mandated wage increase by cutting fringe benefits or reducing employment.
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Suggested Citation

  • Lawrence F. Katz & Alan B. Krueger, 1991. "The Effect of the New Minimum Wage Law in a Low-Wage Labor Market," Working Papers 660, Princeton University, Department of Economics, Industrial Relations Section..
    • Handle: RePEc:pri:indrel:280
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    References listed on IDEAS

    as
    1. Richard B. Freeman & Wayne B. Gray & Casey Ichniowski, 1981. "Low-Cost Student Labor: The Use and Effects of the Subminimum Wage Provisions for Full-time Students," NBER Working Papers 0765, National Bureau of Economic Research, Inc.
    2. Jean Baldwin Grossman, 1983. "The Impact of the Minimum Wage on Other Wages," Journal of Human Resources, University of Wisconsin Press, vol. 18(3), pages 359-378.
    3. Alan B. Krueger, 1991. "Ownership, Agency, and Wages: An Examination of Franchising in the Fast Food Industry," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(1), pages 75-101.
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    Citations

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    Cited by:

    1. Armin Falk & David Huffman, 2007. "Studying Labor Market Institutions in the Lab: Minimum Wages, Employment Protection, and Workfare," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 163(1), pages 30-45, March.
    2. David G. Blanchflower & Andrew Oswald, 1995. "International Wage Curves," NBER Chapters, in: Differences and Changes in Wage Structures, pages 145-174, National Bureau of Economic Research, Inc.
    3. Alan B. Krueger, 1994. "The Effect of the Minimum Wage When It Really Bites: A Reexamination of the Evidence from Puerto Rico," NBER Working Papers 4757, National Bureau of Economic Research, Inc.
    4. Klaus M. Schmidt, 2011. "Social Preferences and Competition," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43, pages 207-231, August.
    5. Giulia Giupponi & Stephen Machin, 2018. "Changing the structure of minimum wages: firm adjustment and wage spillovers," CEP Discussion Papers dp1533, Centre for Economic Performance, LSE.
    6. Richard Sutch, 2010. "The Unexpected Long-Run Impact of the Minimum Wage: An Educational Cascade," NBER Working Papers 16355, National Bureau of Economic Research, Inc.
    7. Rebitzer, James B. & Taylor, Lowell J., 1995. "The consequences of minimum wage laws Some new theoretical ideas," Journal of Public Economics, Elsevier, vol. 56(2), pages 245-255, February.
    8. Michael Shannon, 2011. "The Employment Effects of Lower Minimum Wage Rates for Young Workers: Canadian Evidence," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 50(4), pages 629-655, October.
    9. R. D. Husby, 1993. "The Minimum Wage, Wage Subsidies, And Poverty," Contemporary Economic Policy, Western Economic Association International, vol. 11(3), pages 30-38, July.
    10. Armin Falk & Ernst Fehr & Christian Zehnder, "undated". "The Behavioral Effects of Minimum Wages," IEW - Working Papers 247, Institute for Empirical Research in Economics - University of Zurich.
    11. David Card, 1991. "Do Minimum Wages Reduce Employment? A Case Study of California, 1987-89," NBER Working Papers 3710, National Bureau of Economic Research, Inc.
    12. Richard Sutch, 2010. "The Unexpected Long-Run Impact of the Minimum Wage: An Educational Cascade," Working Papers 201001, University of California at Riverside, Department of Economics, revised Jan 2010.
    13. David Neumark & William Wascher, 1991. "Evidence on Employment Effects of Minimum Wages and Subminimum Wage Provisions From Panel Data on State Minimum Wage Laws," NBER Working Papers 3859, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    minimum wage; subminimum wage; fast food restaurants; franchises;
    All these keywords.

    JEL classification:

    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health

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