Do Tiered Minimum Wage Structures Benefit Firms?

• In Event: Boosting Wages: The Role of Public Policy

Abstract

This paper examines the impact of Oregon's uniquely tiered minimum wage policy on the credit default risk of firms within the Portland metropolitan area. We assess how the localized wage difference for firms inside and outside the Portland urban growth boundary (UGB) affects firms. Firms often draw labor from a broader geographic region, meaning that any policy in one region can directly influence economic conditions in the other. Consequently, a higher local minimum wage acts as an agglomeration force that draws workers from surrounding lower-wage tiers through commuting. This can be an advantage to firms as there is downward pressure on wages above the minimum wage. Existing firms inside the lower minimum wage tier may be forced to pay higher wages to keep or attract workers, putting them at a disadvantage.We use firm-level data from the National Establishment Time Series Database (NETS) spanning 2012 to 2022 and employ a Difference-in-Differences-in-Differences (DDD) framework. To ensure that differences in firm characteristics between the two tiers do not confound our findings, we match firms using a combination of nearest-neighbor propensity score matching and exact matching. We match along pre-treatment characteristics and force exact matching at the industry level using the 6-digits NAICS classification. In our DDD framework, we compare the difference in firm credit default between the two tiers within the Portland metro against the credit default of firms, in the Boise metro area in Idaho, where there is no tiered system, as all firms adhere to the same federal minimum wage. 
Our findings reveal that following the implementation of the tiered minimum wage policy, the credit default of firms within the Portland UGB reduced by 3.4% on average relative to the credit default of firms in outside the UGB, leaving firms in the UGB tier comparatively better off under the new minimum wage structure. This reduction in default translates into a significant practical improvement in firms' debt payments. Specifically, firms in the UGB experienced an average reduction of approximately 3.7 days in payment delays. Our findings are significant  among small, independent, private and firms that pay significantly above the minimum wage.

Author

• Richard Acquah-Sarpong, Oregon State University
  Presenting Author