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Minimum Wages and the Demand for Labor

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Daniel S. Hamermesh

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Abstract

I formulate measures of the effective minimum wage, based on broad definitions of the labor costs that face employers, and use these measures in reestimating some simple equations relating the relative employment of youths and adults to the U.S. minimum wage using aggregate data for 1954-78.I then ground the model more closely in the theory of factor demand, first by adding the relative wages of youths and adults to the equation describing their relative employment, and then by specifying a complete system of demand equations for these two types of labor. Teen employment responds quite robustly to changes in the effective minimum in these specifications, with an elasticity of -0.1. A translog cost function defined over young workers, adults, and capital shows that the effective minimum wage reduces employers' ability to substitute other factors for young workers. Using both sets of results, I find that a subminimum wage for youths would have increased their employment with at most a small loss of jobs among adults.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0656.

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Date of creation: Oct 1982
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Handle: RePEc:nbr:nberwo:0656

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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.:
  1. Grant, James H & Hamermesh, Daniel S, 1981. "Labor Market Competition among Youths, White Women and Others," The Review of Economics and Statistics, MIT Press, vol. 63(3), pages 354-60, August. [Downloadable!] (restricted)
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  2. Berndt, Ernst R & Christensen, Laurits R, 1974. "Testing for the Existence of a Consistent Aggregate Index of Labor Inputs," American Economic Review, American Economic Association, vol. 64(3), pages 391-404, June. [Downloadable!] (restricted)
  3. Richard B. Freeman, 1980. "The Effect of Demographic Factors on Age-Earnings Profiles," NBER Working Papers 0316, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Ragan, James F, Jr, 1977. "Minimum Wages and the Youth Labor Market," The Review of Economics and Statistics, MIT Press, vol. 59(2), pages 129-36, May. [Downloadable!] (restricted)
  5. Welch, Finis, 1974. "Minimum Wage Legislation in the United States," Economic Inquiry, Oxford University Press, vol. 12(3), pages 285-318, September.
  6. Ashenfelter, Orley & Smith, Robert S, 1979. "Compliance with the Minimum Wage Law," Journal of Political Economy, University of Chicago Press, vol. 87(2), pages 333-50, April. [Downloadable!] (restricted)
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  1. Lawrence Kahn, 2002. "The Impact of Wage-Setting Institutions on the Incidence of Public Employment in the OECD: 1960-98," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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