Minimum Wage and Health

Tuesday, June 14, 2016: 3:20 PM
F55 (Huntsman Hall)

Author(s): Susan Averett; Yang Wang; Julie Smith

Discussant: Joseph Sabia

There is an extensive literature and debate in labor economics regarding the effects of raising the minimum wage on employment. In this paper, we consider another dimension along which raising the minimum wage may have an impact on individual well-being—the health of the low income workers who receive such pay increases. The U.S. Federal minimum wage has been constant at $7.25 since July 2009, during which time it has lost 11% of its purchasing power. Over this same period, many states have increased or are discussing increasing their minimum wages.

The goal of this research is to empirically examine whether there is a causal link between minimum wage increases and health. Using difference-in-differences and instrumental variables identification strategies and data drawn from the Behavior Risk Factor Surveillance Survey (BRFSS) from 1991-2013, we estimate the effect of minimum wage increases on several health behaviors and outcomes. We posit that such increases in minimum wages raise incomes for at least some individuals and that this is the mechanism by which minimum wage increases might change health behaviors and improve health. It is estimated that changes in the minimum wage affect 20 to 30 percent of the work force (Belman and Wolfson, 2014), thus understanding its potential health benefits is important.

To examine associations between minimum wage policies and access to health care and health outcomes, we use data from the BRFSS on individual health combined with state-level data from other sources covering the period from 1991 to 2013. We constructed a data set consisting of pooled cross-sectional observations at the individual level that are combined with state-level data on the prevailing minimum wage rate and several other policies, demographic, and labor force characteristics that vary over time and across states.

Preliminary results for a sample of youth aged 18 to 25 years who have at most a high school education indicate that youth residing in states which have higher minimum wages are more likely to report that their health is excellent or very good and are less likely to report that they are currently smoking. We find no effect on the probability of having had a medical check-up in the past year or on self-reported health on a Likert scale. We plan to add more health outcomes including measures of mental health and will estimate the models separately by race and gender. Although changes in minimum wages have been treated as exogenous to individuals’ health-related outcomes in the literature, scholars examining effects of minimum wage on labor market conditions have raised the question that state minimum wage changes are potentially endogenous.  In our case, it is conceivable that some unobserved factors might affect both a state’s minimum wage and its population’s health and so we address possible endogeneity by instrumenting the state minimum wage by a measure of the political balance between the Democratic and the Republican parties in each state.