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Minimum Wages and Aggregate Job Growth: Causal Effect or Statistical Artifact?

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  • Dube, Arindrajit

    ()
    (University of Massachusetts Amherst)

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    Abstract

    A recent paper by Meer and West argues that minimum wages reduce aggregate employment growth, and that this relationship is masked by looking at employment levels. I also find a negative association between minimum wages and aggregate employment growth using both the Business Dynamics Statistics and the Quarterly Census of Employment and Wages datasets, and it is sizable for some time periods. However, I show that this negative association is present in exactly the wrong sectors. It is particularly strong in manufacturing which hires very few minimum wage workers. At the same time, there is no such association in retail, or in accommodation and food services – which together hire nearly 2/3 of all minimum wage workers. These results indicate that the negative association between minimum wages and aggregate employment growth does not represent a causal relationship. Rather the association stems from an inability to account for differences between high and low minimum wage states and the timing of minimum wage increases. Consistent with that interpretation, when I use bordering counties to construct more credible control groups, I find no such negative correlation between minimum wages and overall employment growth.

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    Bibliographic Info

    Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7674.

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    Length: 15 pages
    Date of creation: Oct 2013
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    Handle: RePEc:iza:izadps:dp7674

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    Keywords: minimum wage; employment growth;

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    1. 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.
    2. Alan B. Krueger & David Card, 2000. "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania: Reply," American Economic Review, American Economic Association, American Economic Association, vol. 90(5), pages 1397-1420, December.
    3. David Neumark & J. M. Ian Salas & William Wascher, 2014. "Revisiting the Minimum Wage–Employment Debate: Throwing Out the Baby with the Bathwater?," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 67(2.5), pages 608-648, May.
    4. Jonathan Meer & Jeremy West, 2013. "Effects of the Minimum Wage on Employment Dynamics," NBER Working Papers 19262, National Bureau of Economic Research, Inc.
    5. Laura Giuliano, 2013. "Minimum Wage Effects on Employment, Substitution, and the Teenage Labor Supply: Evidence from Personnel Data," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 31(1), pages 155 - 194.
    6. Addison, John T. & Blackburn, McKinley L. & Cotti, Chad D., 2009. "Do minimum wages raise employment? Evidence from the U.S. retail-trade sector," Labour Economics, Elsevier, Elsevier, vol. 16(4), pages 397-408, August.
    7. Allegretto, Sylvia & Dube, Arindrajit & Reich, Michael & Zipperer, Ben, 2013. "Credible Research Designs for Minimum Wage Studies," IZA Discussion Papers 7638, Institute for the Study of Labor (IZA).
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    Cited by:
    1. Tat Hui, Weng & Toh, Ruby, 2014. "Growth with equity in Singapore : challenges and prospects," ILO Working Papers, International Labour Organization 485017, International Labour Organization.

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