Product Market Evidence on the Employment Effects of the Minimum Wage
We infer the employment response to a minimum wage change by calibrating a model
of employment for the restaurant industry. Whereas perfect competition implies employment
falls and prices rise after a minimum wage increase, the monopsony model potentially
implies the opposite. We show that estimated price responses are consistent with
the competitive model. We place fairly tight bounds on the employment response, with
the most plausible parameter values suggesting a 10 percent increase in the minimum
wage lowers low skill employment by 2 to 4 percent and total restaurant employment by
1 to 3 percent.
