City Minimum Wages

Local minimum wage laws are becoming common across U.S. cities, and their effects may be different from the effects of state or nationwide minimum wage policies. This paper studies the effect of changes in the minimum wage on spatial equilibriums in local labor markets. Using residence and workplace data for the United States, I analyze how commuting, residence, and employment locations change across city and state borders if the minimum wage changes on one side of the border. I find that areas in which the minimum wage increases receive fewer low-wage commuters. A 10 percent increase in the minimum wage reduces the inflow of low-wage commuters by about 3 percent. Rises in the minimum wage are also associated with employment relocation across borders toward areas that did not witness an increase in the minimum wage. I formulate a spatial equilibrium gravity model to explain the distribution of workers between lowand high-minimum wage areas. I calculate counterfactual equilibriums with a higher minimum wage for U.S. cities that are considering an increase, highlighting the role of commuting and migration responses. About two-thirds of the cities considering increases would receive fewer low-wage commuters. These commuting losses are driven by employment relocations and are similar to those suggested by the reduced form analysis. ∗Department of Economics, Brown University. Email: jorge [email protected]. I am grateful to Nathaniel Baum-Snow, Kenneth Chay, John Friedman, Nathaniel Hilger, Brian Knight, Pascal Michaillat, Emily Oster, and, especially, Matthew Turner for guidance. I also benefited from conversations with Lorenzo Aldeco, Guillermo Alves, Juan Pablo Chauvin, David Glancy, Heitor Pellegrina, Nickolai Riabov, Lucas Scottini, Nate Schiff, and seminar participants at Brown University, the American Association of Geographers, Universidad Javeriana and the Urban Economics Association. I acknowledge support from Fulbright-Colciencias and S4 at Brown. All errors are my own.