MINIMUM WAGE AND THE BOTTOM LINE: A DIFFERENCE-­IN-­DIFFERENCE ANALYSIS

Abstract

This paper investigates the impact of the 2007 United States federal minimum wage increase on the bottom line—the expected and realized profitability of affected employers. The presence of state-­specific minimum wage laws produces a natural variation in across-­firm exposure to the minimum wage increase. I determine the treatment intensity experienced by each firm under study by constructing a profile of its geographic distribution across the country. This information is then used to evaluate the effect of the minimum wage increase on expected profitability, using an event study methodology, and on realized profitability, via difference‐in‐difference regression analysis. I find a significant negative impact on both the short­‐term stock prices and accounting profits of firms with a high concentration of minimum wage workers.