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Why minimum wage hikes may not reduce employment

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  • Madeline Zavodny

Abstract

Recent research has challenged the conventional wisdom among economists that increases in the minimum wage reduce employment among low-wage workers. Although some studies continue to find negative effects, others suggest that moderately raising the minimum wage may not reduce employment. The author of this article describes and evaluates several models that may explain the controversial recent findings and proposes avenues for future research that would help determine the validity of these models. ; The author notes that if the recent findings that minimum wage increases do not always adversely affect employment are correct, economists may need to reconsider their views of how labor markets work. In addition, research on other effects of minimum wage increases is needed. For example, the distributional consequences are important, particularly if higher-skilled workers displace lower-skilled workers when the minimum wage is raised. The recent findings challenging traditional thinking about employment and the minimum wage should be taken as the starting point for a larger examination of the effects of the minimum wage rather than an end to the debate.

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Bibliographic Info

Article provided by Federal Reserve Bank of Atlanta in its journal Economic Review.

Volume (Year): (1998)
Issue (Month): Q 2 ()
Pages: 18-28

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Handle: RePEc:fip:fedaer:y:1998:i:q2:p:18-28:n:v.83no.2

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Keywords: Employment (Economic theory) ; Minimum wage;

References

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  1. Lawrence Katz & Alan Krueger, 1992. "The Effect of the Minimum Wage on the Fast Food Industry," Working Papers 678, Princeton University, Department of Economics, Industrial Relations Section..
  2. repec:fth:prinin:389 is not listed on IDEAS
  3. David Card, 1992. "Using regional variation in wages to measure the effects of the federal minimum wage," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 46(1), pages 22-37, October.
  4. Addison, John T. & Blackburn, McKinley L., 1998. "Minimum Wages and Poverty," ZEW Discussion Papers 98-42, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  5. Daniel Aaronson, 1997. "Price pass-through and minimum wages," Working Paper Series, Macroeconomic Issues WP-97-03, Federal Reserve Bank of Chicago.
  6. David Neumark & William Wascher, 1992. "Employment effects of minimum and subminimum wages: Panel data on state minimum wage laws," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 46(1), pages 55-81, October.
  7. Richard V. Burkhauser & Kenneth A. Couch & David C. Wittenburg, 1996. "Who gets what from minimum wage hikes: A re-estimation of Card and Krueger's distributional analysis in "Myth and Measurement: The New Economics of the Minimum Wage."," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 49(3), pages 547-552, April.
  8. Lynch, Lisa M, 1992. "Private-Sector Training and the Earnings of Young Workers," American Economic Review, American Economic Association, vol. 82(1), pages 299-312, March.
  9. 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.
  10. Brown, Charles & Medoff, James, 1989. "The Employer Size-Wage Effect," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1027-59, October.
  11. John Kennan, 1995. "The Elusive Effects of Minimum Wages," Journal of Economic Literature, American Economic Association, vol. 33(4), pages 1950-1965, December.
  12. Stephen Machin & Alan Manning, 1994. "The effects of minimum wages on wage dispersion and employment: Evidence from the U.K. Wages Councils," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 47(2), pages 319-329, January.
  13. Lang, Kevin & Kahn, Shulamit, 1998. "The effect of minimum-wage laws on the distribution of employment: theory and evidence," Journal of Public Economics, Elsevier, vol. 69(1), pages 67-82, July.
  14. Kenneth Burdett & Dale T. Mortensen, 1989. "Equilibrium Wage Differentials and Employer Size," Discussion Papers 860, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  15. Kim, Taeil & Taylor, Lowell J, 1995. "The Employment Effect in Retail Trade of California's 1988 Minimum Wage Increase," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(2), pages 175-82, April.
  16. Janet Currie & Bruce C. Fallick, 1996. "The Minimum Wage and the Employment of Youth Evidence from the NLSY," Journal of Human Resources, University of Wisconsin Press, vol. 31(2), pages 404-428.
  17. Victor Fuchs & Alan Krueger & James Poterba, 1997. "Why Do Economists Disagree About Policy? The Roles of Beliefs About Parameters and Values," Working Papers 768, Princeton University, Department of Economics, Industrial Relations Section..
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Citations

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Cited by:
  1. Christian Ragacs, 2003. "Mindestlöhne und Beschäftigung: die empirische Evidenz. Ein Literaturüberblick," Wirtschaft und Gesellschaft - WuG, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik, vol. 29(2), pages 215-246.
  2. Christian Ragacs, 2003. "Mindestlöhne und Beschäftigung: Ein Überblick über die neuere empirische Literatur," Working Papers geewp25, Vienna University of Economics Research Group: Growth and Employment in Europe: Sustainability and Competitiveness.
  3. Orrenius, Pia M. & Zavodny, Madeline, 2010. "The Minimum Wage and Latino Workers," IZA Discussion Papers 5341, Institute for the Study of Labor (IZA).

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