The Race Between Education, Technology, and the Minimum Wage

Abstract

What is the impact of the real minimum wage on wages and inequality? I develop a theory that nests “The Race Between Education and Technology.” The theory predicts that the impact of changes in minimum wages is initially small but grows over time. I present empirical evidence of these dynamic effects: the elasticity of real wages grows substantially over a three-year period. I additionally show that minimum wages help rationalize a considerable decline in real wages of low-education workers in the 1980s and play a role in shaping the evolution of the U.S. college premium.