The Effects of a Raised Minimum Wage on Employment: Differences across States and Social Groups

The purpose of this project is to analyze the impact of a minimum wage increase on the probability of being employed in the fast food industry in selected states and to test the hypothesis that this impact may be different in different regions of the United States. Our study uses the Current Population Survey (CPS) and focuses on four states divided in two groups. The first group includes Vermont and New Hampshire, and the second includes Illinois and Indiana. The states were chosen so that each pair contains two similar states, one of which has experienced a recent minimum wage increase (Vermont in January 2006, and Illinois in January 2005), while the other has kept the minimum wage at its previous level. In each pair, the state which did not experience a minimum wage increase is used as a control group. Once we have separately modeled the effects of the minimum wage increase on employment for each pair of states, we proceed to compare the models and determine whether there are significant differences between them. Our models also include explanatory variables for age, education and race in order to control for individual level characteristics. While we find a reduction of employment in Vermont for workers under the age of 23 after the increase of the minimum wage, no similar reduction was found in Illinois.