How Do Firms Respond to Minimum Wage Increases? Understanding the Relevance of Non-employment Margins

Journal of Economic Perspectives, 2021, vol. 35, issue 1, 51-72

Abstract: This paper discusses non-employment margins through which firms may respond to minimum wage increases. Margins of interest include evasion, output prices, noncash compensation, job attributes including effort requirements, the firm’s mix of low- and high-skilled labor, and the firm’s mix of labor and capital. I discuss the basic theory behind each margin’s potential importance as well as findings from empirical research on their real-world relevance. Additionally, I present a set of pedagogical diagrams that show how supply and demand analyses of labor markets can be extended to bring additional nuances of real-world markets into the classroom.

JEL-codes: D24 J22 J23 J31 J32 J38 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (69)

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DOI: 10.1257/jep.35.1.51

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