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Voluntary Minimum Wages
Ellora Derenoncourt, Assistant Professor of Economics, Princeton University
Abstract: Recent wage growth at the bottom of the earnings distribution in the U.S. has reversed a decades-long trend of widening wage inequality. Numerous state and local minimum wage increases have overtaken an increasingly non-binding federal minimum wage, and robust labor demand in the post-pandemic recovery drove substantial wage growth in the low-wage sector. An increasingly pervasive phenomenon during this time period is the use of voluntary, company-wide minimum wages by private employers, including some of the largest retailers in the U.S. We study the effects of these large retailer policies on their own wages and employment as well as spillover effects on other employers. Voluntary minimum wages result in sizable wage increases and reductions in turnover at the companies that implemented them. Despite the decline in separations from companies with voluntary minimums, overall hiring rates at other companies do not decline, and wages at other companies do not increase. Thus, while voluntary minimum wages have affected over 3 million jobs among the largest retailers with policies, their impact on the broader market is limited.
Ellora Derenoncourt is an Assistant Professor of Economics at Princeton University and a member of the Industrial Relations Section of Princeton Economics. She works on labor economics, economic history, and the study of inequality. Recently she has studied the northern backlash against the Great Migration and ensuing declines in black upward mobility and the role of federal minimum wage policy in racial earnings convergence during the Civil Rights Era. Her work has been featured in the Economist, the New York Times, and Wall Street Journal. She received her PhD in Economics from Harvard University in 2019.
