Minimum Wages and Racial Inequality

Authored by academic.oup.com and submitted by smurfyjenkins

The earnings difference between white and black workers fell dramatically in the United States in the late 1960s and early 1970s. This article shows that the expansion of the minimum wage played a critical role in this decline. The 1966 Fair Labor Standards Act extended federal minimum wage coverage to agriculture, restaurants, nursing homes, and other services that were previously uncovered and where nearly a third of black workers were employed. We digitize over 1,000 hourly wage distributions from Bureau of Labor Statistics industry wage reports and use CPS microdata to investigate the effects of this reform on wages, employment, and racial inequality. Using a cross-industry difference-in-differences design, we show that earnings rose sharply for workers in the newly covered industries. The impact was nearly twice as large for black workers as for white workers. Within treated industries, the racial gap adjusted for observables fell from 25 log points prereform to 0 afterward. We can rule out significant disemployment effects for black workers. Using a bunching design, we find no aggregate effect of the reform on employment. The 1967 extension of the minimum wage can explain more than 20% of the reduction in the racial earnings and income gap during the civil rights era. Our findings shed new light on the dynamics of labor market inequality in the United States and suggest that minimum wage policy can play a critical role in reducing racial economic disparities.

Specialist_Scratch_4 on January 18th, 2021 at 04:08 UTC »

I’m curious if anyone has documentation/ abstract on the effect of small v big business. I’ve heard the argument that business ownership (sole proprietorship) goes down every time the min wage goes up.

illimitable1 on January 18th, 2021 at 01:16 UTC »

1966?

The Fair Labor Standards Act was passed in 1937. It was the original Federal minimum wage. Additional legislation after that modified the original. See 29USC200 et seq.

dukeofmadnessmotors on January 18th, 2021 at 01:05 UTC »

In 1992 economists had a perfect opportunity to determine the effect of a higher minimum wage on unemployment. They tracked similar towns and cities in western NJ and eastern PA after NJ increased their minimum wage by 18% and PA didn't. They found no effect on unemployment.