Beyond Wages and Employment: Do Minimum Wages Affect Management Practices?

Abstract

Extensive research has examined the impact of minimum wages on employment. Yet less explored is whether and how these mandatory wage increases affect the broader spectrum of management practices and job quality. Compensating differentials theory posits that low-wage employers will diminish non-wage amenities to counteract the added labor costs. Conversely, the high-road strategy literature anticipates firms to enhance crucial aspects of job quality to optimize worker productivity. To assess these contrasting hypotheses, I used matched U.S. employee-employer job reviews and ratings to measure management quality in both general terms and across three specific dimensions: schedule quality, investment in employees (training, career opportunity, and relational investment), and employee input (autonomy and voice). I conducted difference-in-differences analyses based on multiple state-mandated minimum wage hikes spanning 2015-2021. The analyses show that as firms comply with mandates to raise wages, they, on average, neither compromise job quality in non-wage aspects nor undergo a thorough management system upgrade in the high-road direction. These findings align with organizational inertia theories and provide evidence of the barriers to high-road diffusion. Specifically, economic and policy pressure can be insufficient to cause strategic adoption of high-road employment systems. This study carries significant policy implications as the first comprehensive evaluation of minimum wage mandates on low-wage job quality. On one hand, it alleviates concerns regarding a negative spillover effect of mandatory wage increases on overall job quality. On the other hand, it highlights the limitations of minimum wage mandates in fostering systematic enhancements in working conditions beyond mere wage adjustments.