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The contribution of minimum wages to increasing wage inequality

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  • Coen N. Teulings

Abstract

Recent research has shown the reduction in the minimum wage to be the main cause of the rise in wage dispersion in the lower half of the wage distribution in the US during the 1980s. However, the return to human capital does not seem to have been much affected. Using new methodology this paper confirms previous conclusions regarding the wage distribution but shows that the return to human capital has also increased strongly. A 10% reduction of the minimum wage causes the wage of someone earning the previous minimum to fall by 8%: evidence in favour of a DIstance-Dependent Elasticity of Substitution (DIDES) production function. Copyright 2003 Royal Economic Society.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 113 (2003)
Issue (Month): 490 (October)
Pages: 801-833

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Handle: RePEc:ecj:econjl:v:113:y:2003:i:490:p:801-833

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  1. Coen N. Teulings, 0000. "Aggregation Bias in Elasticities of Substitution and the Minimum Wage Paradox," Tinbergen Institute Discussion Papers 98-118/3, Tinbergen Institute.
  2. Teulings, Coen N, 1995. "The Wage Distribution in a Model of the Assignment of Skills to Jobs," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 280-315, April.
  3. Stephen Machin & Alan Manning, 1992. "Minimum Wages," CEP Discussion Papers dp0080, Centre for Economic Performance, LSE.
  4. David Card & Alan B. Krueger, 1993. "Minimum Wages and Employment: A Case Study of the Fast Food Industry in New Jersey and Pennsylvania," NBER Working Papers 4509, National Bureau of Economic Research, Inc.
  5. Fortin, N.M. & Lemieux, T., 1996. "Rank Regressions, Wage Distributions and the Gender Gap," Cahiers de recherche 9607, Universite de Montreal, Departement de sciences economiques.
  6. David H. Autor & Lawrence F. Katz & Alan B. Krueger, 1998. "Computing Inequality: Have Computers Changed The Labor Market?," The Quarterly Journal of Economics, MIT Press, vol. 113(4), pages 1169-1213, November.
  7. Meyer, Robert H & Wise, David A, 1983. "Discontinuous Distributions and Missing Persons: The Minimum Wage and Unemployed Youth," Econometrica, Econometric Society, vol. 51(6), pages 1677-98, November.
  8. Coen N. Teulings, 1999. "Substitution and Complementarity under Comparative Advantage and the Accumulation of Human Capital," Tinbergen Institute Discussion Papers 99-049/3, Tinbergen Institute.
  9. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-42, June.
  10. Adrian Wood, 1995. "How Trade Hurt Unskilled Workers," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 57-80, Summer.
  11. Murphy, Kevin M & Welch, Finis, 1990. "Empirical Age-Earnings Profiles," Journal of Labor Economics, University of Chicago Press, vol. 8(2), pages 202-29, April.
  12. Richard B. Freeman, 1995. "Are Your Wages Set in Beijing?," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 15-32, Summer.
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