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Minimum Wages and Employment: Reconsidering the Use of a Time Series Approach as an Evaluation Tool

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  • Wang‐Sheng Lee
  • Sandy Suardi

Abstract

The time-series approach used in the minimum wage literature essentially aims to estimate a treatment effect of increasing the minimum wage. In this paper, we employ a novel approach based on aggregate time-series data that allows us to determine if minimum wage changes have significant effects on employment. This involves the use of tests for structural breaks as a device for identifying discontinuities in the data which potentially represent treatment effects. In an application based on Australian data, the tentative conclusion is that the introduction of minimum wage legislation in Australia in 1997 and subsequent minimum wage increases appear not to have had any significant negative employment effects for teenagers.

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Bibliographic Info

Article provided by London School of Economics in its journal British Journal of Industrial Relations.

Volume (Year): 49 (2011)
Issue (Month): Supplement 2 (07)
Pages: s376-s401

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Handle: RePEc:bla:brjirl:v:49:y:2011:i:s2:p:s376-s401

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References

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  1. Peter Fredriksson & Per Johansson, 2003. "Program Evaluation and Random Program Starts," CESifo Working Paper Series 844, CESifo Group Munich.
  2. Alison J. Wellington, 1991. "Effects of the Minimum Wage on the Employment Status of Youths: An Update," Journal of Human Resources, University of Wisconsin Press, vol. 26(1), pages 27-46.
  3. Brown, Charles & Gilroy, Curtis & Kohen, Andrew, 1982. "The Effect of the Minimum Wage on Employment and Unemployment," Journal of Economic Literature, American Economic Association, vol. 20(2), pages 487-528, June.
  4. Zivot, Eric & Andrews, Donald W K, 2002. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 25-44, January.
  5. Stephen Bazen & Velayoudom Marimoutou, 2002. "Looking for a Needle in a Haystack? A Re-examination of the Time Series Relationship between Teenage Employment and Minimum Wages in the United States," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 64(s1), pages 699-725, 08.
  6. D. W. K. Andrews, 2003. "End-of-Sample Instability Tests," Econometrica, Econometric Society, vol. 71(6), pages 1661-1694, November.
  7. Bai, Jushan, 1997. "Estimating Multiple Breaks One at a Time," Econometric Theory, Cambridge University Press, vol. 13(03), pages 315-352, June.
  8. Ian Watson, 2004. "Minimum Wages and Employment: Comment," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 37(2), pages 166-172, 06.
  9. Perron, P, 1988. "The Great Crash, The Oil Price Shock And The Unit Root Hypothesis," Papers 338, Princeton, Department of Economics - Econometric Research Program.
  10. Jaehwan Park & Ronald Ratti, 1998. "Stationary data and the effect of the minimum wage on teenage employment," Applied Economics, Taylor and Francis Journals, vol. 30(4), pages 435-440.
  11. Andrew Leigh, 2005. "Does Raising the Minimum Wage Help the Poor?," CEPR Discussion Papers 501, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  12. Lechner, Michael, 1999. "Earnings and Employment Effects of Continuous Off-the-Job Training in East Germany after Unification," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(1), pages 74-90, January.
  13. Cooper, Suzanne & Piehl, Anne Morrison & Braga, Anthony & Kennedy, David, 2001. "Testing for Structural Breaks in the Evaluation of Programs," Working Paper Series rwp01-019, Harvard University, John F. Kennedy School of Government.
  14. Harding, Don & Harding, Glenys, 2004. "Minimum wages in Australia: an analysis of the impact on small and medium sized businesses," MPRA Paper 25, University Library of Munich, Germany.
  15. Donald W.K. Andrews, 1990. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Cowles Foundation Discussion Papers 943, Cowles Foundation for Research in Economics, Yale University.
  16. Michael Lechner, 2006. "Matching Estimating of Dynamic Treatment Models: Some Practical Issues," University of St. Gallen Department of Economics working paper series 2006 2006-03, Department of Economics, University of St. Gallen.
  17. Andrew Leigh, 2003. "Employment Effects of Minimum Wages: Evidence from a Quasi-Experiment," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 36(4), pages 361-373.
  18. Hristos Doucouliagos & T.D. Stanley, 2008. "Publication Selection Bias in Minimum-Wage Research? A Meta-Regression Analysis," Economics Series 2008_14, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
  19. Neumark, David & Wascher, William, 2007. "Minimum Wages and Employment," IZA Discussion Papers 2570, Institute for the Study of Labor (IZA).
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