The Effect of State Minimum Wage Increases on Nonprofit Organizations

The impact of minimum wage increases on employment has been extensively examined with mixed results. We extend the literature by hypothesizing and showing a differential impact of state-level minimum wage increases on nonprofit organizations as opposed to for-profit organizations. While we find that increases in minimum wages reduce employment growth in both types of organizations, this decrease is substantially larger for nonprofit organizations. We also find that investment in automation, that is, information technology, rises in nonprofits postminimum wage increase, consistent with the substitution of capital for labor. Minimum wage increases also increase the likelihood of nonprofit exit. JEL: J38, J68, L

Automated summary

The impact of minimum wage increases on employment growth varies for different types of organizations. In particular, nonprofit organizations experience a larger decrease in employment compared to for-profit organizations. This is accompanied by an increase in investment in automation and a higher likelihood of nonprofit exit.