Product Market Evidence on the Employment Effects of the Minimum Wage
AbstractWe calibrate a model of labor demand to infer the employment response to a change in the minimum wage in the food away from home industry. Assuming a perfectly competitive labor market, the model predicts a 2.5 to 3.5 percent fall in employment in response to a 10 percent minimum wage change. We then introduce monopsony power in local labor markets. We identify the extent of monopsony power using information on the degree to which minimum wage cost shocks are passed on to consumers in the form of higher prices. Whereas the competitive model implies that employment falls and prices rise in response to an increase in the minimum wage, the monopsony model potentially implies that employment can rise and prices fall in response to an increase in the minimum wage. Previous research shows that prices rise in response to an increase in the minimum wage. We show that this price response is consistent with the prediction of the competitive model. Calibrating the full model, we can place fairly tight bounds on the elasticity of demand for labor with the most plausible parameter values suggesting a 2 to 3 percent loss in employment in reaction to a 10 percent increase in the minimum wage.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Econometric Society in its series Econometric Society 2004 North American Summer Meetings with number 549.
Date of creation: 11 Aug 2004
Date of revision:
Contact details of provider:
Phone: 1 212 998 3820
Fax: 1 212 995 4487
Web page: http://www.econometricsociety.org/pastmeetings.asp
More information through EDIRC
minimum wage; labor demand; monopsony;
Other versions of this item:
- Daniel Aaronson & Eric French, 2007. "Product Market Evidence on the Employment Effects of the Minimum Wage," Journal of Labor Economics, University of Chicago Press, vol. 25, pages 167-200.
- Daniel Aaronson & Eric French, 2003. "Product market evidence on the employment effects of the minimum wage," Working Paper Series WP-03-17, Federal Reserve Bank of Chicago.
- J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
- J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
- J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Baker, Michael & Benjamin, Dwayne & Stanger, Shuchita, 1999. "The Highs and Lows of the Minimum Wage Effect: A Time-Series Cross-Section Study of the Canadian Law," Journal of Labor Economics, University of Chicago Press, vol. 17(2), pages 318-50, April.
- Daniel Aaronson & Eric French & James MacDonald, 2008. "The Minimum Wage, Restaurant Prices, and Labor Market Structure," Journal of Human Resources, University of Wisconsin Press, vol. 43(3), pages 688-720.
- Daniel Aaronson, 2001. "Price Pass-Through And The Minimum Wage," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 158-169, February.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum).
If references are entirely missing, you can add them using this form.