Did the minimum wage or the Great Recession reduce low-wage employment? Comments on Clemens and Wither (2016)

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Clemens and Wither (2016) argue that the federal minimum wage increases over 2007-2009 significantly depressed employment by comparing the employment trends of low-wage workers in states that were “bound” and not bound by changes in the federal standard. I show that this research design negatively biases the estimates of employment effects of the minimum wage because unbound states were affected differently by the Great Recession and therefore do not provide a valid counterfactual. The differences are reflected in the distinct industrial composition between these two groups of states prior to the Great Recession, including the share of workers in construction. Consistent with this explanation, I find that the authors’ baseline results are not robust to sectoral or geographic controls, which reduce the magnitude of the baseline point estimates by 35.6 to 62.7 percent. Moreover, their research design fails a placebo-based falsification test: using unbound states that did not face a significant minimum wage increase but were in regions with a prevalence of bound states, I reproduce the timing and scope of their estimated employment effects. I also show that industrial and spatial controls reduce the magnitude of the authors’ supplementary estimates for younger workers by 43.2 to 97.3 percent.