MINIMUM WAGES AND GROSS DOMESTIC PRODUCT

This study is the first to explore the relationship between minimum wage increases and state gross domestic product (GDP). Using data drawn from the Bureau of Economic Analysis (BEA) and the Current Population Survey (CPS) from 1979 to 2012, I find no evidence that minimum wage increases were associated with changes in overall state GDP. However, this null finding masks substantial heterogeneity in the productivity effects of minimum wages across industries and over the business cycle. Difference-in-difference-in-difference estimates suggest that a 10% increase in the minimum wage is associated with a short-run 1% to 2% decline in state GDP generated by lower-skilled industries relative to more highly skilled industries. This differential appears larger during troughs as compared to that during peaks of the state business cycle. (JEL J3, J4, L5)