Crunching Big Data to Find the Impact of Minimum Wage
“Asking if a higher minimum wage is good or bad is not productive. It’s not a right or wrong proposition, it’s a nuanced answer depending on the composition of both employees and employers.” —Radhakrishnan Gopalan, professor of finance
In their working paper, Gopalan and his coauthors—Barton Hamilton, the Robert Brookings Smith Distinguished Professor of Economics, Management, and Entrepreneurship at Olin, along with Ankit Kalda and David Sovich, both Olin finance PhD students—used anonymous data obtained from Equifax, a leading information solutions company that collects data on individuals’ credit and employment histories.
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They processed wage data on more than 2 million hourly workers from across the country over a six-year period. The big data set included hourly workers across different industries and studied their employment dynamics for up to one year following the wage increase. Once crunched, the data gave an innovative new look at the effect of a large minimum wage hike on businesses and employees.
“We find that firms are more likely to reduce hiring rather than increase turnover or close locations to rebalance their workforce,” says Gopalan.
They processed wage data on more than 2 million hourly workers from across the country over a six-year period. The big data set included hourly workers across different industries and studied their employment dynamics for up to one year following the wage increase. Once crunched, the data gave an innovative new look at the effect of a large minimum wage hike on businesses and employees.
The researchers believe their findings can be of benefit to states and cities making decisions regarding minimum wage policy. Gopalan says the next step is to further analyze other long-term benefit variables linked to higher minimum wage, including employees’ debt load and credit scores.
KEY TAKEAWAYS for Managers
- Existing minimum wage employees benefit from minimum wage increases; their wages go up, and they are no more likely to lose their jobs than their counterparts in adjacent states.
- Following state minimum wage hikes, companies are reluctant to hire new low-wage employees.
- In the one-year period following the wage hike, companies increase the proportion of higher-wage employees and reduce the proportion of low-wage employees.
Barton Hamilton and Radhakrishnan Gopalan presented their research to alumni and friends in the business community on June 19, 2018.
Authors:
Radhakrishnan Gopalan, PhD, Professor of Finance; Barton H. Hamilton, PhD, Robert Brookings Smith Distinguished Professor of Economics, Management, and Entrepreneurship; and Olin PhD candidates Ankit Kalda and David Sovich, Finance PhD (expected 2018)
Publication
Working paper, May 2017
