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Revisiting the Minimum Wage-Employment Debate: Throwing Out the Baby with the Bathwater?

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  • David Neumark
  • J.M. Ian Salas
  • William Wascher

Abstract

We revisit the minimum wage-employment debate, which is as old as the Department of Labor. In particular, we assess new studies claiming that the standard panel data approach used in much of the “new minimum wage research” is flawed because it fails to account for spatial heterogeneity. These new studies use research designs intended to control for this heterogeneity and conclude that minimum wages in the United States have not reduced employment. We explore the ability of these research designs to isolate reliable identifying information and test the untested assumptions in this new research about the construction of better control groups. Our evidence points to serious problems with these research designs. Moreover, new evidence based on methods that let the data identify the appropriate control groups leads to stronger evidence of disemployment effects, with teen employment elasticities near −0.3. We conclude that the evidence still shows that minimum wages pose a tradeoff of higher wages for some against job losses for others, and that policymakers need to bear this tradeoff in mind when making decisions about increasing the minimum wage.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18681.

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Date of creation: Jan 2013
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Handle: RePEc:nbr:nberwo:18681

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References

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  1. Arindrajit Dube & T. William Lester & Michael Reich, 2010. "Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties," The Review of Economics and Statistics, MIT Press, vol. 92(4), pages 945-964, November.
  2. Jeffrey P. Thompson, 2009. "Using Local Labor Market Data to Re-Examine the Employment Effects of the Minimum Wage," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 62(3), pages 343-366, April.
  3. 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.
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  5. David Fairris & Leon Fernandez Bujanda, 2008. "The Dissipation of Minimum Wage Gains for Workers through Labor-Labor Substitution: Evidence from the Los Angeles Living Wage Ordinance," Southern Economic Journal, Southern Economic Association, vol. 75(2), pages 473-496, October.
  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, vol. 16(4), pages 397-408, August.
  7. Morten O. Ravn & Harald Uhlig, 2002. "On adjusting the Hodrick-Prescott filter for the frequency of observations," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 371-375.
  8. David Card, 1992. "Do minimum wages reduce employment? A case study of California, 1987û1989," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 46(1), pages 38-54, October.
  9. David Card, 1992. "Using Regional Variation in Wages to Measure the Effects of the Federal Minimum Wage," Working Papers 680, Princeton University, Department of Economics, Industrial Relations Section..
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  12. Joseph Sabia, 2009. "The Effects of Minimum Wage Increases on Retail Employment and Hours: New Evidence from Monthly CPS Data," Journal of Labor Research, Springer, vol. 30(1), pages 75-97, March.
  13. 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.
  14. John M. Peterson, 1959. "Employment effects of state minimum wages for women: Three historical cases re-examined," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 12(3), pages 406-422, April.
  15. David Neumark & DMark Schweitzer & DaWilliam Wascher, 2004. "Minimum Wage Effects throughout the Wage Distribution," Journal of Human Resources, University of Wisconsin Press, vol. 39(2).
  16. Addison, John T. & Blackburn, McKinley L. & Cotti, Chad D., 2011. "Minimum Wage Increases in a Soft U.S. Economy," Economics Series 273, Institute for Advanced Studies.
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  18. David Neumark & William L. Wascher, 2008. "Minimum Wages," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262141027, January.
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Citations

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Cited by:
  1. Dube, Arindrajit, 2013. "Minimum Wages and Aggregate Job Growth: Causal Effect or Statistical Artifact?," IZA Discussion Papers 7674, Institute for the Study of Labor (IZA).
  2. 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).
  3. Neumark, David & Thompson, Matthew & Koyle, Leslie, 2012. "The Effects of Living Wage Laws on Low-Wage Workers and Low-Income Families: What Do We Know Now?," IZA Discussion Papers 7114, Institute for the Study of Labor (IZA).
  4. Frings, Hanna & vom Berge, Philipp & Paloyo, Alfredo R., 2013. "High-Impact Minimum Wages and Heterogeneous Regions," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79828, Verein für Socialpolitik / German Economic Association.
  5. Allegretto, Sylvia A., 2013. "Waiting for Change: Is it Time to Increase the $2.13 Subminimum Wage?," Institute for Research on Labor and Employment, Working Paper Series qt3zx9v0zk, Institute of Industrial Relations, UC Berkeley.
  6. Boysen-Hogrefe, Jens & Gern, Klaus-Jürgen & Jannsen, Nils & Plödt, Martin & van Roye, Björn & Scheide, Joachim & Schwarzmüller, Tim & Groll, Dominik & Kooths, Stefan, 2013. "Weltkonjunktur und deutsche Konjunktur im Sommer 2013," Kiel Discussion Papers 524/525, Kiel Institute for the World Economy (IfW).
  7. Muravyev, Alexander & Oshchepkov, Aleksey, 2013. "Minimum Wages, Unemployment and Informality: Evidence from Panel Data on Russian Regions," IZA Discussion Papers 7878, Institute for the Study of Labor (IZA).
  8. John T. Addison & McKinley L. Blackburn & Chad D. Cotti, 2013. "Minimum Wage Increases in a Recessionary Environment," GEMF Working Papers 2013-08, GEMF - Faculdade de Economia, Universidade de Coimbra.
  9. Orrenius, Pia M. & Zavodny, Madeline, 2014. "How Do E-Verify Mandates Affect Unauthorized Immigrant Workers?," IZA Discussion Papers 7992, Institute for the Study of Labor (IZA).
  10. Orrenius, Pia M. & Zavodny, Madeline, 2014. "How do e-verify mandates affect unauthorized immigrant workers?," Working Papers 1403, Federal Reserve Bank of Dallas.
  11. Alexander Muravyev & Aleksey Oshchepkov, 2013. "Minimum wages and labor market outcomes: evidence from the emerging economy of Russia," HSE Working papers WP BRP 29/EC/2013, National Research University Higher School of Economics.

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