Mandated wage floors and the wage structure: Analyzing the ripple effects of minimum and prevailing wage laws

• Main Author: Wicks-Lim, Jeannette
• Language: ENG
• Published: ScholarWorks@UMass Amherst 2005
• Subjects: Labor economics
• Online Access: https://scholarworks.umass.edu/dissertations/AAI3193959

This dissertation empirically investigates the extent of ripple effects associated with changes in mandated wage floors in the United States. Ripple effects are generally theorized to exist because employers provide wage increases beyond those legally required in order to preserve a particular wage hierarchy. This research thus addresses an important policy question: What is the overall impact of mandated wage floors on the wage structure? I examine two types of mandated wage floors: federal and state minimum wage laws and state prevailing wage laws. I use a semi-parametric approach to estimate the wage effect of state and federal minimum wage changes at fourteen different wage percentiles. I find a limited minimum wage ripple effect. Workers earning up to the 15th wage percentile (within 135 percent of the minimum wage prior to the increase) experience a wage effect from minimum wage changes. Although limited in extent, these estimates imply a ripple effect multiplier of approximately 2.40 to 2.50. This expanded effect modestly improves the target efficiency of minimum wage laws. Also, because the wage growth of these lower wage percentiles lag the rest of the wage distribution in the absence of minimum wage changes, they appear to comprise a minimum wage contour. A separate analysis of the retail trade industry produces similar results. To observe prevailing wage law ripple effects, I estimate the wage effect of the repeal of state prevailing wage laws at five different points in the wage distribution using quantile regression. I use mean regression on samples of workers divided by union status and work experience to further specify the location of wage effects. The results suggest that prevailing wage laws produce limited or no ripple effects. The repeal of prevailing wage laws specifically impact the union wage premium of relatively more experienced construction workers and do not appear to spillover significantly to uncovered workers. The pattern of construction premiums across states suggests that prevailing wage laws may substitute as a source of bargaining power for union density.