UC Davis

Minimum wage policies have become widespread throughout the USA in the last two decades. Following the latest federal increase implemented in 2009, thirty states have adopted or increased statewide wage floors. Moreover, over sixty counties and cities have adopted local minimum wages. While economists agree on the effectiveness of these policies in increasing the earnings of low-wage workers, the effects on employment and other outcomes are still heavily debated. This dissertation studies the effect of the highest minimum wages in the USA and previous literature. In addition, it examines the effects on less-studied outcomes, such as separation rates, output prices, and the novel outcome of skill demand. Finally, it provides evidence of the presence of monopsony power in the studied industries, which helps to reconcile the detected effects.The first chapter, Sectoral Wage-Setting and Prices in California, co-authored with Michael Reich, studies the effects of the minimum wage policy implemented in California in 2024 that increased the wage floor to $20 for workers in fast food and snack and non-alcohol beverage bars. This paper utilizes several administrative and private data sources to estimate the effects of the policy on wages and employment of fast food workers. Additionally, it collects novel data on detailed menu prices from thousands of restaurants throughout California and the United States to study the effects of the policy on prices.Findings using difference-in-differences and triple differences event studies suggest that the policy increased the earnings of covered workers by approximately 11% without affecting the employment rate. Prices increased by 2.1% two quarters after the policy, representing a 60% price pass-through of higher labor costs. The remaining increase is likely partially absorbed by reduced profit margins. Interestingly, due to the nature of franchise agreements and inelastic demand for fast food, parent companies might have seen an increase in profits while franchisees experienced a reduction in profits.The second chapter, Minimum Wage Effects and Monopsony Explanations, co-authored with Justin Wiltshire, Carl McPherson, and Michael Reich and accepted for publication in The Journal of Labor Economics (2026), studies labor outcome effects of statewide minimum wages in California and New York. This paper is the first to study the effects of state wage floors in the US as high as $15. To do so, the paper develops a novel stacked synthetic control methodology. Results suggest substantial pay growth and no disemployment effects in the fast food industry.Moreover, the paper finds that a minimum wage reduces separation rates in the restaurant industry and raises wages more quickly than prices at McDonald’s stores. Both findings imply a monopsonistic labor market with declining rents. The paper further demonstrates the presence of monopsony using the dynamic monopsony model and by documenting a strong, positive employment effect in the tight post-pandemic labor market characterized by a more elastic labor supply.The third chapter, The Effect of Minimum Wage on Skill Demand: Evidence Using Online Job Postings, examines the effects of minimum wage on job vacancies and the demand for skills. The paper utilizes county-level policy discontinuities at state borders and a two-way fixed effects model to identify the causal effects of statewide minimum wage policies in the US between 2016 and 2019. It is the first economic paper to use publicly available data on online job postings collected and distributed by the National Labor Exchange.Findings suggest a slight negative to no effect on job vacancies for food-related occupations, consistent with previous literature. The paper then studies the effect of minimum wages on demand for three types of skills: cognitive, computer, and soft skills. The latter category combines social skills and character traits to define skills that are not directly obtainable through higher education or knowledge. The study shows that these skills are twice as commonly required for food-related occupations that are more likely to pay minimum wage or slightly above. Results indicate that higher minimum wages lead employers to require soft skills for more positions and, on average, to demand a greater number of soft skills. By contrast, cognitive and computer skills are not affected.