The Impact of the Minimum Wage on Other Wages

Abstract

In this paper I explore how changes in the minimum wage affect various occupational wages. I postulate that other wages increase for two reasons: first, firms try to mitigate the deterioration in a worker's relative wage which would cause him to reduce his work effort, and second, there is an increase in the demand for nonminimum wage workers. Wage adjustment patterns are examined to ascertain whether wage comparisons play a role in the adjustment process. The empirical work shows a short-run wage compression among white-collar occupations which is consistent with the wage comparison model. However, large standard errors make inferences weak.

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