The Impact of the Minimum Wage on DI Participation

WP#2020-6

Abstract

This report provides an empirical analysis of the impact of the minimum wage on DI claims and awards.  It draws on data from the Social Security Administration’s State Agencies Monthly Workload Dataset, from which a state-by-year panel of DI claims and awards is constructed for 2002-2017 and matched to data on the real effective minimum wage, the higher of the federal and state minimum wage in each state and year.  Then two reduced-form estimation methodologies are employed.  The first follows studies in the hourly wage-inequality literature and models log DI claims as a function of the bindingness of the minimum wage in the state hourly wage distribution.  The second follows studies in the minimum wage disemployment literature and models log claims (in both levels and first-differences) as a function of a distributed lag of the minimum wage.

The paper found that:

  • Across a wide variety of specifications that control for an array of factors deemed important in previous minimum wage studies, including state-level economic conditions such as unemployment and economic activity, the Great Recession, and the presence of linear state trends, both methodologies lead to the same primary finding: the minimum wage has had no net effect in the short run on DI claims and awards.
  • The estimated elasticities of DI claims and awards to the minimum wage are both economically small and not statistically different from zero.

 
The policy implications of the findings are:

  • Based on the estimates, any policy proposals to increase the minimum wage would be predicted to have no discernable impact on DI claims and awards.