The Effect of the Minimum Wage on Shareholder Wealth Revisited

David Card and Alan Krueger's Myth and Measurement: The New Economics of the Minimum Wage is perhaps the most cited comprehensive treatment of the economics of the minimum wage. One element of Card and Krueger's (1995) analysis pertains to the effect of anticipated minimum wage increases on shareholder wealth. To estimate the potential effects, if any, of an expected increase in the minimum wage on the share price of firms' employing significant numbers of low-skilled workers, Card and Krueger (1995) conduct dozens of event studies using the standard event study methodology at the time. The methodology employed by Card and Krueger is flawed. Kolari & Pynnönen (2010) show that where there is event-date clustering (as in the events examined by Card and Krueger), “even relatively low cross-correlation among abnormal returns is serious in terms of over-rejecting the null hypothesis of zero average abnormal returns.” We replicate the event studies conducted by Card and Krueger. Additionally, we conduct an event study to test the impact of President Obama's surprise announcement of his support for raising the federal minimum wage to $9.00/hour. Similar to Card and Kruegers' studies, we find evidence of statistically significant abnormal returns on the share prices of firms reliant on low-skilled labor when we employ standard event study methodology. However, when we conduct the event studies using the test statistics modification suggested by Kolari & Pynnönen (2010), and correct for the cross-correlation of returns where there is event-date clustering, we can no longer reject the null in any of the examined cases