Minimum wage effects and monopsony explanations

Authors:
Justin Wiltshire, University of Victoria
Carl McPherson, University of California, Berkeley
Michael Reich, University of California, Berkeley

Abstract:

We present the first causal analysis of recent large minimum wage increases, focusing on 47 large U.S. counties that reached $15 or more by 2022q1. Using novel stacked county-level synthetic control estimators, we find substantial pay growth and no disemployment effects. Our research design allows us to reduce selection and attenuation effects—by excluding counties with local minimum wages or those with high wages. We then find significant and larger positive employment effects, as the monopsony model predicts. We go on to document the presence of monopsony in the restaurant industry. We show that minimum wages reduce restaurant workers’ separation rates and that they caused McDonald’s workers’ wages to grow faster than the prices of Big Macs, suggesting the presence of monopsony power and positive economic profits. The fast food industry’s monopsony power allowed it to accommodate large minimum wage increases and raise employment.