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Are There Long-Run Effects of the Minimum Wage?

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  • Isaac Sorkin

    (University of Michigan)

Abstract

An empirical consensus suggests that there are small employment effects of minimum wage increases. This paper argues that these are short-run elasticities. Long-run elasticities, which may differ from short-run elasticities, are policy relevant. This paper develops a dynamic industry equilibrium model of labor demand. The model makes two points. First, long-run regressions have been misinterpreted because even if the short- and long-run employment elasticities differ, standard methods would not detect a difference using US variation. Second, the model offers a reconciliation of the small estimated short-run employment effects with the commonly found pass-through of minimum wage increases to product prices. (Copyright: Elsevier)

Suggested Citation

  • Isaac Sorkin, 2015. "Are There Long-Run Effects of the Minimum Wage?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(2), pages 306-333, April.
  • Handle: RePEc:red:issued:13-225
    DOI: 10.1016/j.red.2014.05.003
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    More about this item

    Keywords

    Labor demand; Putty-clay; Minimum wages; Dynamic models;
    All these keywords.

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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