State Minimum Wage Increases and Business Establishments: Evidence from Staggered Policy Adoption

Abstract

Does raising the minimum wage discourage business formation? Standard economic theory predicts that higher labor costs reduce firm entry, yet empirical evidence on this extensive margin remains surprisingly sparse. This paper exploits staggered adoption of above-federal minimum wages across U.S. states between 2012 and 2021 to estimate causal effects on business establishment counts using a modern difference-in-differences framework. Drawing on Census Bureau County Business Patterns data covering 51 jurisdictions over 10 years (510 state-year observations), I find precisely estimated null effects: the elasticity of establishment counts with respect to the real minimum wage is $-0.018$ (SE = 0.036), implying that a 10 percent minimum wage increase is associated with a 0.18 percent decrease in establishments—an economically small effect that is statistically indistinguishable from zero. Callaway-Sant'Anna heterogeneity-robust estimators confirm the null result (ATT = $-0.013$, SE = 0.012), and event study estimates show no differential pre-trends among states with within-sample policy adoption. Results are robust to excluding large states, adding state-specific trends, and alternative treatment definitions. The findings suggest that minimum wage increases in the range observed during this period do not detectably affect aggregate business formation, contributing to the broader debate about whether minimum wage policy poses meaningful barriers to entrepreneurship.