Absence of conflict of interest.
Citation
Clemens J., & Strain M.R. (2022). Understanding “wage theft”: Evasion and avoidance responses to minimum wage increases. Labour Economics, 79. https://doi.org/10.1016/j.labeco.2022.102285.
Highlights
- The study's objective was to examine the impact of minimum wage increases on the prevalence of subminimum wage payments, and to examine how that impact varies by the type of minimum wage increase (large statutory, small statutory, or inflation indexed).
- The authors used a difference-in-differences design to estimate the impact of minimum wage increases on the incidence of subminimum wage payments, using data from the Current Population Survey (CPS) for 2011 to 2019. They used a statistical model to compare the incidence of subminimum wage payments before and after minimum wage policy changes in states that did and did not implement minimum wage increases.
- The study suggested that there was a positive relationship between statutory minimum wage increases and a greater prevalence of subminimum wage payments.
- The quality of causal evidence in this study is low because the authors did not ensure that the individuals being compared were similar before the change in the minimum wage. This means we are not confident that the estimated effects are attributable to the minimum wage increases; other factors are likely to have contributed.
Intervention Examined
Minimum Wage Increases
Features of the Intervention
States can pass legislation to increase minimum wages for their workers above the federal minimum wage. After a post-Great Recession pause in minimum wage increases, some states began increasing their minimum wages using differing approaches. Some states increased minimum wages through new legislation (“statutory changes”), others through pre-existing laws that required inflation-indexed increases, and others stuck to the $7.25 federal minimum. Among states that enacted statutory changes via new legislation, the authors distinguished between small statutory increases (less than $1) and large statutory increases ($1 or more).
Features of the Study
The authors used a difference-in-differences design to estimate the impacts of increases in state minimum wages in the United States between 2011 and 2019 on subminimum wage payments, a form of minimum wage noncompliance. The authors defined “subminimum” wages as an hourly wage more than 25 cents less than the minimum wage in an individual’s state of residence. The authors distinguished between three types of minimum wage increases: large statutory increases, small statutory increases, and inflation indexed increases. The authors also examined how the implementation and enforcement of the minimum wage increase impacted subminimum wage payments.
The study focused on impacts on workers between the ages of 16 and 25. Using earnings data from the CPS, the authors used a statistical model to compare the prevalence of subminimum wage payments before and after minimum wage policy changes in states that did and did not implement minimum wage changes. The authors measured differential changes from a baseline period of 2011–2013, during which the federal and state minimum wages were very stable, to the period 2016–2019, when states’ minimum wages diverged substantially.
Findings
Earnings
- The study suggested that increases to the state minimum wage via statutory changes were associated with statistically significant increases in the incidence of subminimum wage payments. The study did not detect a statistically significant association between increases in the minimum wage due to inflation-indexing and rates of subminimum wage payments.
Considerations for Interpreting the Findings
The authors did not account for preexisting differences between individuals before the change in the minimum wage. These preexisting differences—and not the minimum wage increases—could explain the observed differences in outcomes. Therefore, the study is not eligible for a moderate causal evidence rating, the highest rating available for nonexperimental designs.
Causal Evidence Rating
The quality of causal evidence presented in this study is low because the authors did not ensure that the individuals being compared were similar before the change in minimum wages. This means we are not confident that the estimated effects are attributable to minimum wage increases; other factors are likely to have contributed.