Association for Public Policy Analysis & Management

As recently as May, 2017 the U.S. Congress introduced legislation to increase the Federal minimum wage from $7.25 per hour to $15 over a seven year period (S. 1242). Younger persons and low-wage earners are often subjects of empirical research on minimum wages due to their relatively high sensitivity to changes in the minimum wage. There is reason to believe that persons with disabilities may also be sensitive to changes in minimum wages if there is a higher proportion of workers near the binding minimum wage in the earnings distribution. On average, people with disabilities experience poorer labor market outcomes, including lower wages, earnings, and rates of employment. Policy interest in increasing minimum wages coupled with known existing disadvantages among persons with disabilities makes it imperative to empirically examine expected labor market outcomes. This paper uses a continuous structural unemployed labor market search model to simulate how changes to the U.S. Federal Minimum Wage policy may differentially affect employment responses for workers with and without disabilities. Monthly data comes from the 2016 Current Population Survey, and disability is defined in terms of a binary self-reported functional limitation. Due to observed higher sensitivity of young persons to minimum wage changes, the sample consists only of labor market participants between the ages of 25 and 62. Preliminary results suggest that persons with disabilities typically experience lower employment contact rates, and nearly double the rate of exogenous employment termination relative to workers without disabilities. Additionally, the instantaneous disutility of unemployment is notably greater for people without disabilities. These qualitative inferences do not appear to be driven by key differing demographic characteristics such as age or educational attainment, and the model appears to match the data relatively well. Using the model's parameter estimates, a simulated increase in the Federal Minimum Wage from $7.25 an hour to $10, $12, and $15 predicts that workers with disabilities would experience unemployment increases approximately four to five times larger than workers without disabilities. While employment costs are disproportionately allocated to persons with disabilities, there is also reason to believe that their share in benefits (i.e. rising wages among those who remain employed) may also be asymmetrically allocated as well. Preliminary estimates from this model suggest persons with and without disabilities earning less than $15 an hour would experience a similar average hourly wage increase. The present study is in a partial equilibrium framework that does not account for possible changes in labor market participation, and focuses mostly on the employment response. The model projects a relatively mild employment response to a rising minimum wage for the majority of the workers (workers with disabilities represent less than four percent of this sample’s population); yet it is important to understand how possible costs associated with a rise in the minimum wage may be disproportionately allocated to workers with disabilities in order to design effective policies.