Beyond Paycheck: Subminimum Wage Ban and Mental Health of People with Disabilities

• In Event: Mental Health

Abstract

In this paper, I study the mental health effects of banning subminimum wages for people with disabilities (PWD). Subminimum wage policies, historically permitted under Section 14(c) of the Fair Labor Standards Act, allow employers to pay workers with disabilities below the federal minimum wage. While these programs are often justified as a means to promote employment, they may also reinforce labor market segregation and limit economic opportunities. I examine whether recent state-level bans on subminimum wages improve mental well-being among PWD. Using data from the Behavioral Risk Factor Surveillance System (BRFSS) from 2013 to 2024, I exploit staggered variation in the timing of state-level policy changes to implement a difference-in-differences research design. I find that the removal of subminimum wages leads to a statistically significant reduction in mental health problems. Specifically, the policy reduces the probability of experiencing any poor mental health by 5.2% and decreases the number of days with poor mental health by 14.14%. These effects are economically significant and robust across alternative specifications and tests. I further document substantial heterogeneity in treatment effects. The mental health improvements are larger among women and individuals with lower levels of educational attainment, which are groups that are more likely to be exposed to subminimum wage employment and to experience higher levels of economic insecurity. Additional analyses show that individuals with more severe disabilities also experience disproportionately large gains, suggesting that the policy is particularly beneficial for more vulnerable populations. To shed light on the underlying mechanisms, I provide evidence that the observed improvements are driven by increases in income and access to preventive healthcare. Eliminating subminimum wages raises earnings and facilitate transitions into more stable and integrated employment settings, thereby reducing financial stress and improving access to employer-based or privately financed healthcare. I also find suggestive evidence that improved access to routine care contributes to better mental health outcomes, consistent with a broader literature linking healthcare access to psychological well-being. Taken together, these findings highlight the broader welfare gains associated with subminimum wage bans. Beyond their direct effects on earnings, such policies can generate meaningful improvements in mental health, particularly among disadvantaged groups. More broadly, the results suggest that promoting competitive and integrated employment opportunities for PWD can yield important benefits that extend beyond the labor market, contributing to overall well-being and social inclusion.

Author

• Yiyu Xing, University of California - Los Angeles
  Presenting Author