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Looking for a Needle in a Haystack? A Re‐examination of the Time Series Relationship between Teenage Employment and Minimum Wages in the United States

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  • Stephen Bazen
  • Velayoudom Marimoutou

Abstract

The work of Card and Krueger has cast doubt on the nature of the relationship between the minimum wage and teenage employment in the United States. The earlier ‘consensus’ finding of a small but statistically significant negative effect was based on time series data whereas Card and Krueger's findings are based mainly on cross‐section data. In this article, we re‐examine the time series relationship between minimum wage and teenage employment. We find that previous models break down due to their inability to capture changes in the trend, cyclical and seasonal components of teenage employment. We propose an alternative approach in which these components are treated as stochastic components and which contains the traditional, deterministic approach as a special case. The model when estimated up to 1979 accurately predicts what happens to teenage employment subsequently, when the minimum wage was frozen after 1981 and then increased quite substantially in the early 1990s. Moreover, we find that there is a significant, negative effect of the minimum wage on teenage employment and its size has hardly changed during the 1980s and early 1990s.

Suggested Citation

  • Stephen Bazen & Velayoudom Marimoutou, 2002. "Looking for a Needle in a Haystack? A Re‐examination of the Time Series Relationship between Teenage Employment and Minimum Wages in the United States," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 64(supplemen), pages 699-725, December.
  • Handle: RePEc:bla:obuest:v:64:y:2002:i:supplement:p:699-725
    DOI: 10.1111/1468-0084.64.s.7
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    References listed on IDEAS

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    1. Krane, Spencer & Wascher, William, 1999. "The cyclical sensitivity of seasonality in U.S. employment," Journal of Monetary Economics, Elsevier, vol. 44(3), pages 523-553, December.
    2. 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.
    3. Harvey, Andrew & Scott, Andrew, 1994. "Seasonality in Dynamic Regression Models," Economic Journal, Royal Economic Society, vol. 104(427), pages 1324-1345, November.
    4. Charles Brown & Curtis Gilroy & Andrew Kohen, 1982. "The Effect of the Minimum Wage on Employment and Unemployment: A Survey," NBER Working Papers 0846, National Bureau of Economic Research, Inc.
    5. Harvey, Andrew, 1997. "Trends, Cycles and Autoregressions," Economic Journal, Royal Economic Society, vol. 107(440), pages 192-201, January.
    6. Charles Brown & Curtis Gilroy & Andrew Kohen, 1983. "Time-Series Evidence of the Effect of the Minimum Wage on Youth Employment and Unemployment," Journal of Human Resources, University of Wisconsin Press, vol. 18(1), pages 3-31.
    7. Gary Solon, 1985. "The Minimum Wage and Teenage Employment: A Reanalysis with Attention to Serial Correlation and Seasonality," Journal of Human Resources, University of Wisconsin Press, vol. 20(2), pages 292-297.
    8. Harvey, A C, et al, 1986. "Stochastic Trends in Dynamic Regression Models: An Application to the Employment-Output Equations," Economic Journal, Royal Economic Society, vol. 96(384), pages 975-985, December.
    9. Burkhauser, Richard V & Couch, Kenneth A & Wittenburg, David C, 2000. "A Reassessment of the New Economics of the Minimum Wage Literature with Monthly Data from the Current Population Survey," Journal of Labor Economics, University of Chicago Press, vol. 18(4), pages 653-680, October.
    10. 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, vol. 90(5), pages 1397-1420, December.
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    Cited by:

    1. Sara Connolly & Mary Gregory, 2002. "The National Minimum Wage and Hours of Work: Implications for Low Paid Women," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 64(supplemen), pages 607-631, December.
    2. Wang‐Sheng Lee & Sandy Suardi, 2011. "Minimum Wages and Employment: Reconsidering the Use of a Time Series Approach as an Evaluation Tool," British Journal of Industrial Relations, London School of Economics, vol. 49(Supplemen), pages 376-401, July.

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