Minimum Wage Channels of Adjustment

The economic impact of the 2007-2009 increases in the federal minimum wage (MW) isanalyzed using a sample of quick-service restaurants in Georgia and Alabama. Store-levelbiweekly payroll records for individual employees are used, allowing us to precisely measurethe MW compliance cost for each restaurant. We examine a broad range of adjustmentchannels in addition to employment, including hours, prices, turnover, training, performancestandards, and non-labor costs. Exploiting variation in the cost impact of the MW acrossrestaurants, we find no significant effect of the MW increases on employment or hours overthe three years. Cost increases were instead absorbed through other channels of adjustment,including higher prices, lower profit margins, wage compression, reduced turnover, andhigher performance standards. These findings are compared with MW predictions fromcompetitive, monopsony, and institutional/behavioral models; the latter appears to fit best inthe short run...