A new database, quantifying the minimum wage effect on jobs
What is the Own-Wage Elasticity (OWE)?
In a recent paper coauthored with Ben Zipperer, "Own-Wage Elasticity: Quantifying the Impact of Minimum Wages on Employment", we examine how minimum wage increases affect employment. We use a measure called Own-Wage Elasticity (OWE), which tells us how much employment changes in a group of workers when their average wage rises due to a minimum wage hike.
We reviewed 88 studies from the U.S., U.K., Canada, and countries in the European Union that evaluate minimum wage policies and provide estimates for both wages and employment. From this, we have created a new repository, the Minimum Wage Own-Wage Elasticity Repository, which makes it easier for researchers, journalists, and policymakers to assess the evidence.
What is the OWE and why is it important?
For any group of workers, OWE divides the percentage change in employment resulting from a minimum wage hike by the percentage change in their average wages from the same policy.
Here’s an example: Imagine a minimum wage increase results in a 10% rise in the average wage of restaurant workers.
If the OWE for restaurant workers is -0.2, this 10% wage increase would correspond to a 2% decrease in restaurant jobs. The total earnings for restaurant workers would rise by 8% (10% higher wages - 2% fewer jobs), suggesting a successful policy that benefits low-wage workers overall.
In contrast, an OWE of -0.8 would imply an 8% decrease in restaurant jobs with the same 10% wage increase. Here, job losses would erase most wage gains, and total earnings would rise by just 2%, making it a less effective policy.
The OWE is a useful measure for a few key reasons:
It helps us compare the impact of minimum wages across different groups of workers and different studies.This is because the OWE accounts for how much a minimum wage increase actually affects wages for a specific group. For example, a minimum wage increase might have a bigger impact on the wages of fast-food workers than on the wages of nurses, even if the percentage increase in the minimum wage is the same.
It helps policymakers estimate the potential impact of future minimum wage increases. By looking at the OWE, policymakers can get a better sense of how much a minimum wage increase might affect employment.
It focuses on studies that show minimum wages actually increase wages. This is important because if a study doesn't show that a minimum wage increase led to higher wages, it's hard to know if any changes in employment were actually caused by the minimum wage.
What Does the Literature Say About the Size of the OWE?
We examined 88 studies from the U.S., U.K., Canada, and countries in the European Union that evaluate the impact of minimum wages and found that the median OWE was -0.14. Among the 72 studies published in academic journals, the OWE was -0.13. The typical study suggests that minimum wage increases have a small impact on employment.
In practical terms, for every $100 increase in wages due to a minimum wage hike, total earnings for all workers in the group (including those who lose jobs) increased by $87. The figure below shows the distribution of estimates from these 72 published studies. Most estimates (71%) are either positive or show a small negative impact (OWE less negative than -0.4), while more negative estimates, such as -0.8, are rare, occurring in only 17% of studies.
Here are some additional findings from our review:
Studies published since 2010 tend to find OWEs that are closer to zero, suggesting even smaller employment effects. This could reflect the fact that newer studies use more sophisticated statistical methods.
Studies that look at broad groups of low-wage workers, such as all workers without a college degree, tend to find smaller negative OWEs than studies that focus on specific subgroups, like teenagers or restaurant workers.
The Minimum Wage OWE Repository: A Continuously Updated Resource
To support ongoing research and policy analysis, we have created the Minimum Wage OWE Repository, a publicly available and regularly updated collection of OWE estimates. This resource, available at https://economic.github.io/owe/, provides valuable information for researchers, policymakers, and anyone interested in understanding the evolving evidence on minimum wage impacts.
The repository currently includes data from 88 studies, covering a wide range of countries, minimum wage policies, and worker groups. The GitHub platform allows authors to submit new estimates, propose revisions, and engage in open discussions about the data. This collaborative approach ensures that the repository remains a comprehensive and up-to-date reflection of the latest research on OWE.