Necessity Is the Mother of Invention: How Minimum Wages Affect Innovation

Abstract

This master's thesis investigates the impact of minimum wages on innovation in the United States. I construct a panel dataset with minimum wages and patent production across US states between 1983 and 2015. My estimates are based on a difference-in-differences approach that exploits the different timing of minimum wage raises across US states and the fact that federal minimum wage is not inflation adjusted. Two-way fixed-effects' estimates suggest that a 1 USD increase in the minimum wage is associated with approximately a 9 percent increase in patent production. Accounting for heterogeneous treatment effects suggests that this effect is potentially larger. Altogether, my results provide support for the Habakkuk thesis that labor scarcity encourages technological innovation. It also provides insights into recent debates surrounding the causes of automation as well as calls for the minimum wage to be raised in the United States.