A Stepping-Stone? An Analysis of How the Minimum Wage Impacts the Wage Growth of Individuals in Monopsonistic Industries

Do minimum wage increases serve as stepping-stones to higher-paying jobs for low-pay workers? This paper analyzes the impact of state minimum wage policy on the one-year wage growth rates of individuals across the wage distribution and whether that impact changes for individuals in highly monopsonistic industries. I review the recent literature on the disemployment effect, the impact of the minimum wage on wage growth rates, the nature of monopsonistic industries, and the relationship between the minimum wage and monopsony power. I offer theoretical reasons why the minimum wage may impact the wage growth rates of individuals in monopsonistic industries differently than it impacts those of individuals in competitive industries. I then re-estimate Lopresti’s and Mumford’s (2016) panel fixed effects model to determine how the effect of a minimum wage increase depends nonlinearly on the size of the increase. Using data from 2005-2008, Lopresti and Mumford found that small minimum wage increases have a significant negative impact on wage growth rates, while large minimum wage increases have a significant positive impact. Using data from 2016-2019, I find similar results. As my primary empirical contribution, I test whether individuals in highly monopsonistic industries experience minimum wage changes differently than individuals in more competitive industries. I find monopsony power in the form of high labor immobility primarily impacts the wage growth rates of high-pay workers and does not influence how low-pay workers experience minimum wage changes. Finally, I recommend policymakers impose larger minimum wage increases to avoid impeding the wage-growth of low-pay workers.