The Effect of the Minimum Wage on Shareholder Wealth

Abstract

This paper presents a series of event studies that measure the stock market reaction to news about the minimum wage. We use two samples of firms: a broad sample of companies in low-wage industries; and a narrow sample of firms that mentioned the cost effects of the federal minimum wage in their recent annual reports. Our analysis of legislative events leading up to the 1989 amendments to the Fair Labor Standards Act shows little systematic effect on the market value of low-wage companies. We also analyze a series of events associated with a confidential memo from the Secretary of Labor that was leaked in mid-1993. Here, the stock market reactions suggest that news of a possible change in the minimum wage may have a modest effect on value of low-wage companies.