Evidence of The Unintended Labor Scheduling Implications of The Minimum Wage

RESEARCH
B R I E F S
I N E C O N O M I C P O L I C Y
J un e 1, 2022 N u m b e r 296
Evidence of the Unintended Labor

Scheduling Implications of the
Minimum Wage
B y Q i u p i n g Y u , G e o rg i a I n st i t u t e o f T e c h n o l o g y ; S h aw n M a n ka d , C o r n e l l
U n i v e rs i t y ; a n d M a s h a S h u n ko , U n i v e rs i t y o f W a s h i n g to n
T
he effect of the minimum wage has been an effect so elusive is that, besides employment, firms may
important topic of debate for decades. For many strategically respond to the minimum wage through job
years, low-wage laborers, especially in the food attributes other than wages, such as worker schedules. This
service and retail sectors in the United States, is often not considered but can have significant implications
have been advocating an increase in the minimum wage to on worker welfare. Despite its theoretical importance, no
$15. Intending to increase worker welfare, many states (e.g., empirical evidence has been established yet on the scheduling
California and New York) and municipalities (San Francisco, implications of the minimum wage. This is partly due to the
Seattle, and New York City) have responded by raising their fact that detailed scheduling data (that capture the precise
minimum wages. daily shifts worked by all employees within the same firms)
There are concerns that an increase in the minimum wage are not publicly available and are hard to obtain.
may have negative consequences, including job losses. The In our research, we take the first step to study how firms
findings that appear to support these concerns, however, are respond to a minimum wage in their labor scheduling practice
not conclusive: some studies show that the minimum wage by leveraging a highly granular data set of worker schedules
has a small but negative employment effect, while others from a medium-sized chain of fashion retail stores in the
show no such adverse employment effect. This debate has United States. Specifically, we study worker scheduling and
continued to the present. Part of what makes the employment minimum wage data from 2015 to 2018 for 5,832 workers at
Editor, JEFFREY MIRON, Harvard University and Cato Institute.

47 stores in California and 17 stores in Texas. All stores share Besides the direct reduction in total wage compensation
the same brand. Our data include all workers employed at and eligibility for benefits, we also show that increasing the
the stores. They are all paid by the hour, and most of them minimum wage leads to less-consistent worker schedules
are paid the minimum wage. The key advantage of our data in terms of both the number of hours they work from one
set is that it allows precise measurements of labor hours for a week to another and the timing of their shifts. In particular,
store as a whole and for all individual workers within a store, for each $1 increase in the minimum wage, the absolute
including the timings of the shifts for each worker. deviation in the number of weekly hours worked by each
We consider the stores in Texas—where the minimum worker increases by up to 32.9 percent. In addition, we
wage of $7.25 did not change during our study period—as show that the absolute deviation in the number of daily
the control group, and we consider the stores in California— hours increases by up to 9.7 percent. When exploring the
where the minimum wage was constant in 2015 and has effects across different workers, we find that the deteriora-
increased every year thereafter—as the treatment group. tion of scheduling consistency is generally more severe for
Our results show that the minimum wage has a negligi- workers with a shorter tenure.
ble impact on the total labor hours employed at the stores, The practices of limited and inconsistent hours have
which is consistent with the literature on the employment already been extremely prevalent, especially in the ser-
effect of minimum wage, especially in the nontradable vice and retail sectors and among low-wage workers.
sectors (e.g., retail and service). However, we show that the Recent studies have found that in 2015, 6.4 million work-
way in which the stores allocate these hours among their ers—4.4 percent of the entire national labor force—were
workers does change. Specifically, when the minimum working part time even though they would have preferred
wage increases by $1, the number of workers scheduled to to work full time and that 17 percent of the U.S. workforce
work each week goes up by 27.7 percent, while the average has inconsistent work schedules. Previous research shows
hours per worker per week decrease by 19.4 percent. For that limited and inconsistent worker schedules can make it
an average store in California, for example, these changes significantly harder for workers to coordinate job activi-
translate into four extra workers per week and five fewer ties with their personal lives, to have a second job, or to
hours per worker per week. This means, for an average attain financial stability. These issues could be exacer-
worker in California paid the minimum wage, that her bated through further minimum wage increases and thus
total wage compensation is reduced by 13.6 percent when underscore the need to better understand the scheduling
increasing the minimum wage from $11 to $12. implications of the minimum wage.
This decrease in the average number of hours worked not We further show that increasing the minimum wage
only reduces total wages but also impacts workers’ eligibil- can diminish worker welfare due to the changes in firms’
ity for benefits. We show that the percentage of workers scheduling practices, even when it does not reduce the
with more than 20 weekly hours (who may be eligible for overall employment. For an average worker in a California
retirement benefits, according to the Employee Retirement store in our data, we estimate the net loss of welfare due to
Income Security Act of 1974) and those with more than 30 their reduction of hours, lower eligibility for benefits, and
weekly hours (who may be eligible for health care insur- less-consistent schedules (that resulted from a $1 increase
ance, according to the Affordable Care Act) decreases by in the minimum wage) to be at least $1,599 annually, or
21.5 percent and 15.3 percent, respectively. These results 11.6 percent of the worker’s total wage compensation. This is
suggest that as the minimum wage increases, firms may assuming that workers were able to use their reduced hours
strategically adjust their scheduling practices to reduce to work a second job—an assumption that may not hold
the number of workers who are eligible for benefits. This true for many workers.
is consistent with results from previous research on survey Our study is the first to empirically examine the labor
data that show that a minimum wage increase reduces scheduling implications of the minimum wage. The granu-
workers’ likelihood to receive health care insurance, espe- larity of our data allows us to precisely characterize the
cially in the low-wage sectors. scheduling practice of each retail store and cleanly identify
2
how stores’ scheduling practices and workers’ schedules that truly benefit workers, it is essential for policymak-
change with the minimum wage. The economic literature ers to better understand the operational tradeoffs that
generally assumes that the welfare effect of a minimum firms face in their scheduling decisions (in the presence of
wage increase is positive if it does not reduce employment. demand and capacity uncertainties). Our study sheds light
However, our results show that stores’ strategic adjust- on this critical issue.
ments in their labor scheduling practices (as a result of the
minimum wage increase) can substantially reduce worker
welfare, even when the overall employment at the stores is NOTE
unchanged. These results highlight the importance of this This research brief is based on Qiuping Yu, Shawn Mankad,
infrequently considered operational mechanism through and Masha Shunko, “Evidence of the Unintended Labor Sched-
which increasing the minimum wage may impact worker uling Implications of the Minimum Wage,” Manufacturing &
welfare. As such, to better design minimum wage policies Service Operations Management (forthcoming).
The views expressed in this paper are those of the author(s) and should not be attributed to the Cato Institute, its trustees,
its Sponsors, or any other person or organization. Nothing in this paper should be construed as an attempt to aid or hinder
the passage of any bill before Congress. Copyright © 2022 Cato Institute. This work by the Cato Institute is licensed under a
Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.

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RESEARCH

Evidence of the Unintended Labor

Editor, JEFFREY MIRON, Harvard University and Cato Institute.

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