Orazem, Peter; Mattila, J. Peter

Journal of Labor Research Vol. 23 no. 1 (Winter 2002): 3-23.

Research on Iowa low-wage retail and service industries supports the view that minimum wages lower employment opportunities for workers. The sample period includes three successive changes in the Iowa minimum wage in 1990, 1991, and 1992, during which time the Iowa rate exceeded the federal minimum wage and that of its surrounding states. Firm-level longitudinal data which separated sub- from superminimum workers yielded employment demand elasticities ranging from -0.3 to -0.7. Hours elasticities were even larger, implying that the increases in minimum wages lowered earnings for subminimum workers. These findings are corroborated by analysis of county-level, two-digit industry data. Minimum wages also reduced the number of firms, but increased average firm size in these industries.