City-Level Minimum Wages and the Great Recession: A New Perspective on the Jobless Recovery

Abstract: The employment recovery following the Great Recession in the United States has been sluggish, with more severely affected areas experiencing particularly weaker rebounds. This paper provides a new explanation from an overlooked perspective in the literature: minimum wage policies. Using metropolitan area–level data, I show that minimum wage increases between 2012 and 2019 are associated with employment declines. Post-recession employment loss is more pronounced in regions that experienced larger initial shocks, and this sluggish recovery is concentrated in MSAs with higher minimum wage standards, indicating that high minimum wages have amplified labor market weakness. Accounting estimates suggest that nearly 10 percent of the remaining employment shortfall in 2015 can be attributed to minimum wage increases. The impact is even greater for low-educated workers and those in the manufacturing sector, who are more directly exposed to minimum wage regulations. Mechanism analysis points to firm exit and capital–labor substitution as key channels behind the disemployment effect. These findings indicate that post-recession policy interventions, if not carefully timed, can unintentionally impede labor market recovery.