Press Release

New study: Minimum wages raise pay for workers at small businesses without job loss



BERKELEY, CA — A groundbreaking new study by UC Berkeley economist Michael Reich and Belgian economist Jesse Wursten provides the first causal analysis of minimum wage effects on small businesses. Using state-of-the art statistical methods and thirty years of employer-reported Census data, the report finds that minimum wages increase pay in low-wage industries, particularly in small businesses, without a decline in employment rates. The authors also find no effect on the number of small business establishments.

“Until now, no studies have looked at how minimum wage increases actually affect small business job numbers,” explains Reich. “Our study belies claims that higher minimum wages harm small businesses, by demonstrating that minimum wages raise pay for low-wage workers in small businesses without leading to job loss.”

Additional key findings include:

  • The results for all low-wage industries also hold among the lowest-wage industries: fast food, full-service restaurants, grocery stores and general merchandise stores.
  • Unlike most low-wage workers, teen workers see larger wage gains at larger businesses than at smaller ones, and minimum wage increases lead teens to spend more time on schooling and less time working.

“This study suggests that small and large businesses have the same ability to adjust to minimum wages without laying off workers,” said Wursten.

This report builds on the Berkeley team’s long track record of influential minimum wage analyses, which has included recent studies of how minimum wages influence racial wage gaps and parental labor supply.

The Center for Wage and Employment Dynamics (CWED) is a project of the Institute for Research on Labor and Employment (IRLE) at UC Berkeley. IRLE connects world-class research with policy to improve workers’ lives, communities, and society.