The Effect of Minimum Wages on Labour Market Outcomes: County-Level Estimates from the Restaurant-and-Bar Sector

We use US county-level data on employment and earnings in the restaurant-and-bar sector to evaluate the impact of minimum-wage changes in low-wage labour markets. Our estimated models are consistent with a simple competitive model in which supply-and-demand factors affect both the equilibrium outcome and the probability of the minimum wage being binding. Our evidence does not suggest that minimum wages reduce employment once controls for trends in county-level sectoral employment are incorporated. Rather, employment appears to exhibit an independent downward trend in states that have increased their minimum wages relative to states that have not, thereby predisposing estimates towards reporting negative outcomes.