Minimum Wages and Rural and Urban Firm Entry and Exit

Abstract

The US federal government has not increased the minimum wage since 2009. However, since then, 29 states and the District of Columbia have increased their minimum wage above the federal level. Many studies analyze the effect of the minimum wage on employment with mixed results. To the extent a consensus exists, it is that the minimum wage likely has small negative effects on low-skill employment (Neumark and Shirley 2021). Because prevailing wages are lower in rural markets than in urban markets, rural workers and firms should face the largest positive or negative impacts from a commonly applied minimum wage. While Even and MacPherson (2019) did find that rural areas had a greater adverse effect from the minimum wage, Godoy and Rich (2020) and Winters (2020) find that the lowest wage or least populated areas had the least negative, or even positive, employment effects from minimum wage increases.