Minimum Wage Effects on Employment in Low-Wage Service Sectors: A Synthetic Control Analysis

Abstract

The employment effects of minimum wage legislation remain among the most contested empirical questions in labor economics. Competing identification strategies yield divergent estimates, and methodological debates have intensified as state-level minimum wage variation has expanded substantially since 2010. This paper revisits the employment effects of minimum wage increases in U.S. retail and foodservice industries using a synthetic control approach applied to 37 state-level minimum wage changes between 2010 and 2022. We address three concerns raised in the recent literature: parallel pre-trends violations in difference-in-differences estimators, treatment effect heterogeneity across the wage distribution, and confounding effects of concurrent labor market policies. Our synthetic control estimates find employment elasticities in the range of −0.05 to +0.02, with near-zero central estimates for the restaurant industry and small negative effects at very high minimum-to-median wage ratios exceeding 0.8. We discuss implications for the ongoing methodological debate and for optimal minimum wage policy design.