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Why minimum wage hikes may not reduce employment

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  • Madeline Zavodny

Abstract

Recent research has challenged the conventional wisdom among economists that increases in the minimum wage reduce employment among low-wage workers. Although some studies continue to find negative effects, others suggest that moderately raising the minimum wage may not reduce employment. The author of this article describes and evaluates several models that may explain the controversial recent findings and proposes avenues for future research that would help determine the validity of these models. ; The author notes that if the recent findings that minimum wage increases do not always adversely affect employment are correct, economists may need to reconsider their views of how labor markets work. In addition, research on other effects of minimum wage increases is needed. For example, the distributional consequences are important, particularly if higher-skilled workers displace lower-skilled workers when the minimum wage is raised. The recent findings challenging traditional thinking about employment and the minimum wage should be taken as the starting point for a larger examination of the effects of the minimum wage rather than an end to the debate.

Suggested Citation

  • Madeline Zavodny, 1998. "Why minimum wage hikes may not reduce employment," Economic Review, Federal Reserve Bank of Atlanta, issue Q 2, pages 18-28.
  • Handle: RePEc:fip:fedaer:y:1998:i:q2:p:18-28:n:v.83no.2
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    References listed on IDEAS

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    1. Lawrence F. Katz & Alan B. Krueger, 1992. "The Effect of the Minimum Wage on the Fast-Food Industry," ILR Review, Cornell University, ILR School, vol. 46(1), pages 6-21, October.
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    3. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-293, March.
    4. John T. Addison & McKinleyl Blackburn, 1999. "Minimum Wages and Poverty," ILR Review, Cornell University, ILR School, vol. 52(3), pages 393-409, April.
    5. David Card & Lawrence Katz & Alan Krueger, 1993. "Comment on David Neumark and William Wascher, 'Employment Effects of Minimum and Subminimum Wages: Panel Data on State Minimum Wage Laws'," Working Papers 695, Princeton University, Department of Economics, Industrial Relations Section..
    6. Rebitzer, James B. & Taylor, Lowell J., 1995. "The consequences of minimum wage laws Some new theoretical ideas," Journal of Public Economics, Elsevier, vol. 56(2), pages 245-255, February.
    7. Kim, Taeil & Taylor, Lowell J, 1995. "The Employment Effect in Retail Trade of California's 1988 Minimum Wage Increase," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(2), pages 175-182, April.
    8. Lynch, Lisa M, 1992. "Private-Sector Training and the Earnings of Young Workers," American Economic Review, American Economic Association, vol. 82(1), pages 299-312, March.
    9. Daniel Aaronson, 1997. "Price pass-through and minimum wages," Working Paper Series, Macroeconomic Issues WP-97-03, Federal Reserve Bank of Chicago.
    10. David Card, 1992. "Using Regional Variation in Wages to Measure the Effects of the Federal Minimum Wage," ILR Review, Cornell University, ILR School, vol. 46(1), pages 22-37, October.
    11. John Kennan, 1995. "The Elusive Effects of Minimum Wages," Journal of Economic Literature, American Economic Association, vol. 33(4), pages 1950-1965, December.
    12. Janet Currie & Bruce C. Fallick, 1996. "The Minimum Wage and the Employment of Youth Evidence from the NLSY," Journal of Human Resources, University of Wisconsin Press, vol. 31(2), pages 404-428.
    13. 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.
    14. 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.
    15. Kenneth Burdett & Dale T. Mortensen, 1989. "Equilibrium Wage Differentials and Employer Size," Discussion Papers 860, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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    Cited by:

    1. Christian Ragacs, 2003. "Mindestlöhne und Beschäftigung: Ein Überblick über die neuere empirische Literatur," Working Papers geewp25, Vienna University of Economics and Business Research Group: Growth and Employment in Europe: Sustainability and Competitiveness.
    2. Orrenius, Pia M. & Zavodny, Madeline, 2007. "The minimum wage and Latino workers," Working Papers 0708, Federal Reserve Bank of Dallas.
    3. Christian Ragacs, 2003. "Mindestlöhne und Beschäftigung: Die empirische Evidenz," Wirtschaft und Gesellschaft - WuG, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik, vol. 29(2), pages 215-246.
    4. KARGI, Bilal, 2013. "Ücret Yapışkanlığı Hipotezi'nin Test Edilmesi: Türkiye'de Asgari Ücret ve Büyüme Üzerine Zaman Serileri Analizi (2005-2012)
      [Testing Wage Rigidity Stickiness Hypothesis: Time Series Analysis on the
      ," MPRA Paper 55695, University Library of Munich, Germany.
    5. John Connor, 2007. "Woe for the Working Classes," Challenge, Taylor & Francis Journals, vol. 50(2), pages 20-38.

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