1. For what it's worth, my model of the effects of minimum wages is this.
2. The labour market consists of a covered and uncovered sector. In the old literature, the uncovered was illegal working, here I think of it as being self-employment.
3. A job consists of wage and non-wage payments eg. a wage per hour and "working conditions". The latter might be: holidays, paid tea breaks, number of breaks, effort at work, how horrible or nice the boss it etc. etc.
4. When a minimum wage comes along, adjustment is along many margins. Wages might rise, but employment contracting status might change and non-wage attributes might change. Once the min wage gets to a certain level, there is no more adjustment avaiable though non-wage attributes and employment might then fall.
5. Here is an example of adjustment of attributes. From the March 2016 NBER digest.
In Delivering Higher Pay? The Impacts of a Task-Level Pay Standard in the Gig Economy (NBER Working Paper 34545), Yuan An, Andrew Garin, and Brian K. Kovak examine Seattle's App-Based Worker Minimum Payment Ordinance, which took effect in January 2024. The ordinance, which applies to tasks starting or ending within the city limits, establishes a minimum base compensation for delivery tasks as the greater of $0.44 per minute plus $0.74 per mile, or $5 per task.
The researchers analyze unique data from Gridwise, a third-party app that tracks detailed gig work activity across multiple platforms. Their dataset covers over 2.8 million tasks completed by nearly 6,000 workers in Washington state from August 2023 through July 2024. It includes task-level information on base pay, tips, bonuses, locations, and timing. The researchers compare workers whose pre-reform delivery activity was concentrated in Seattle with workers active elsewhere in Washington state.
The minimum pay standard immediately doubled average base pay per task in Seattle from $5.37 to $12.52 while pay rates remained constant in the rest of the state. However, average tips per delivery declined substantially following the policy, offsetting over one-third of the base pay increase.
For highly attached incumbent drivers, who completed an above-median number of tasks pre-reform (approximately 20 per month), increased base earnings per task were offset both by decreased tips and by a reduction in the number of tasks completed per month. By February 2024, the number of monthly tasks fell by at least 20 percent. Taken together, drivers’ monthly earnings remained virtually unchanged after the reform.
6. So the non-wage attributes, here tips, entirely offset the wage rise. There were other effects for non-incumbents, but overall nothing got better.
7. Of course, we want workers to be compensated well. But this question for min wage setters, I think, is a different one: do they have the information to set better the balance between wage and non-wage attributes than that prevailing in the market?
