Association for Public Policy Analysis & Management

Panel: Minimum Wage Policies As an Approach to Reducing Inequality

(Poverty and Income Policy)

Wage inequality is a growing problem across the industrialized world. One currently popular approach for addressing wage inequality is to create or raise the government-mandated wage floor, typically called minimum or living wage laws. In the U.S. and Europe, this policy approach is being used not only at the national level, but also by sub-national (i.e. city or state) governments. Advocates for minimum wage policies argue that the policy increases wages at the bottom end of the earnings distribution (thereby reducing inequality), decreases absolute poverty levels, and more appropriately values the work and workers being affected. Research suggests, however, that these benefits may be outweighed by reductions in employment or hours, and increases in prices. In addition, increased labor costs can conceivably threaten employer competitiveness relative to businesses in places without a wage floor. This panel considers the effects of a minimum wage increase in two U.S. cities and the Republic of Ireland on earnings, the distribution of income, and area prices. All three are open economies, characterized by free trade and short travel distances, which offer a way to understand differential welfare effects based on the scale the policy is implemented. Results can, in turn, aid policymakers in prioritizing which social policies create both competitive and equitable outcomes in their own jurisdictions. The first paper uses a large sample of internet-based restaurant menu data to analyze the price effects of a minimum wage policy in San Jose, California on the city’s competitiveness. The authors collected price data before and after San Jose implemented a 25 percent minimum wage increase in March 2013 and investigate whether these price changes had negative economic impacts for businesses, particularly at the border of San Jose and Santa Clara county. The second paper explores the nominal and distributive impact on family income of a minimum wage increase in the Republic of Ireland. The authors use a nationally-representative survey and incorporate spillover and employment effects from the literature to predict employment, wage, and equity effects of a minimum wage increase equivalent to two-thirds of the median hourly wage by 2020. The third paper describes immediate impacts of the City of Seattle minimum wage ordinance on employers, workers, and area prices. The Seattle law took effect in April 2015, with incremental increases mandated yearly for 5 years, when the minimum wage will be $15 per hour. The panel discussant is an expert on inequality, low pay, and wage floors in Great Britain.