IDEAS home Printed from https://ideas.repec.org/a/red/issued/13-225.html
   My bibliography  Save this article

Are There Long-Run Effects of the Minimum Wage?

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1016/j.red.2014.05.003
    Download Restriction: Access to full texts is restricted to ScienceDirect subscribers and institutional members. See http://www.sciencedirect.com/ for details.

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Dube, Arindrajit & Lester, T. William & Reich, Michael, 2011. "Do Frictions Matter in the Labor Market? Accessions, Separations and Minimum Wage Effects," IZA Discussion Papers 5811, Institute for the Study of Labor (IZA).
    2. Edward P. Lazear & Paul Oyer, 2012. "Personnel Economics," Introductory Chapters,in: Robert Gibbons & John Roberts (ed.), The Handbook of Organizational Economics Princeton University Press.
    3. Card, David & Krueger, Alan B, 1994. "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania," American Economic Review, American Economic Association, pages 772-793.
    4. Pierre Brochu & David A. Green, 2013. "The Impact of Minimum Wages on Labour Market Transitions," Economic Journal, Royal Economic Society, vol. 123(12), pages 1203-1235, December.
    5. 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.
    6. Jonas D. M. Fisher & Jeffrey R. Campbell, 2000. "Aggregate Employment Fluctuations with Microeconomic Asymmetries," American Economic Review, American Economic Association, pages 1323-1345.
    7. David Neumark & William L. Wascher, 2008. "Minimum Wages," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262141027, January.
    8. Michael P. Keane & Kenneth I. Wolpin, 2002. "Estimating Welfare Effects Consistent with Forward-Looking Behavior. Part I: Lessons from a Simulation Exercise," Journal of Human Resources, University of Wisconsin Press, vol. 37(3), pages 570-599.
    9. A. Colin Cameron & Jonah B. Gelbach & Douglas L. Miller, 2011. "Robust Inference With Multiway Clustering," Journal of Business & Economic Statistics, Taylor & Francis Journals, pages 238-249.
    10. Abadie, Alberto & Imbens, Guido W., 2011. "Bias-Corrected Matching Estimators for Average Treatment Effects," Journal of Business & Economic Statistics, American Statistical Association, pages 1-11.
    11. Davis, Steven J. & Faberman, R. Jason & Haltiwanger, John, 2012. "Labor market flows in the cross section and over time," Journal of Monetary Economics, Elsevier, vol. 59(1), pages 1-18.
    12. David H. Autor & Alan Manning & Christopher L. Smith, 2016. "The Contribution of the Minimum Wage to US Wage Inequality over Three Decades: A Reassessment," American Economic Journal: Applied Economics, American Economic Association, vol. 8(1), pages 58-99, January.
    13. Edward P. Lazear, 1995. "Personnel Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121883, January.
    14. Pereira, Sonia C., 2003. "The impact of minimum wages on youth employment in Portugal," European Economic Review, Elsevier, vol. 47(2), pages 229-244, April.
    15. Christopher J. Flinn, 2006. "Minimum Wage Effects on Labor Market Outcomes under Search, Matching, and Endogenous Contact Rates," Econometrica, Econometric Society, vol. 74(4), pages 1013-1062, July.
    16. Pinoli, Sara, 2008. "Rational Expectations and the Puzzling No-Effect of the Minimum Wage," MPRA Paper 11405, University Library of Munich, Germany.
    17. Hamermesh, Daniel S, 1989. "Labor Demand and the Structure of Adjustment Costs," American Economic Review, American Economic Association, pages 674-689.
    18. Brown, Charles & Gilroy, Curtis & Kohen, Andrew, 1982. "The Effect of the Minimum Wage on Employment and Unemployment," Journal of Economic Literature, American Economic Association, pages 487-528.
    19. Jonas D. M. Fisher & Jeffrey R. Campbell, 2000. "Aggregate Employment Fluctuations with Microeconomic Asymmetries," American Economic Review, American Economic Association, pages 1323-1345.
    20. Patrick J. Kehoe & Andrew Atkeson, 1999. "Models of Energy Use: Putty-Putty versus Putty-Clay," American Economic Review, American Economic Association, pages 1028-1043.
    21. Jonathan Meer & Jeremy West, 2016. "Effects of the Minimum Wage on Employment Dynamics," Journal of Human Resources, University of Wisconsin Press, vol. 51(2), pages 500-522.
    22. Pierre Cahuc & André Zylberberg, 2004. "Labor Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 026203316x, January.
    23. Russell Cooper & Jonathan Willis, 2009. "The Cost of Labor Adjustment: Inferences from the Gap," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(4), pages 632-647, October.
    24. Daniel Aaronson & Eric French, 2007. "Product Market Evidence on the Employment Effects of the Minimum Wage," Journal of Labor Economics, University of Chicago Press, vol. 25, pages 167-200.
    25. Daniel Aaronson, 2001. "Price Pass-Through And The Minimum Wage," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 158-169, February.
    26. Zhongjun Qu & Pierre Perron, 2007. "Estimating and Testing Structural Changes in Multivariate Regressions," Econometrica, Econometric Society, pages 459-502.
    27. Baker, Michael & Benjamin, Dwayne & Stanger, Shuchita, 1999. "The Highs and Lows of the Minimum Wage Effect: A Time-Series Cross-Section Study of the Canadian Law," Journal of Labor Economics, University of Chicago Press, vol. 17(2), pages 318-350, April.
    28. Jeffrey R. Campbell & Beverly Lapham, 2004. "Real Exchange Rate Fluctuations and the Dynamics of Retail Trade Industries on the U. S.-Canada Border," American Economic Review, American Economic Association, pages 1194-1206.
    29. Gorry, Aspen, 2013. "Minimum wages and youth unemployment," European Economic Review, Elsevier, vol. 64(C), pages 57-75.
    30. Caballero, Ricardo J & Hammour, Mohamad L, 1994. "The Cleansing Effect of Recessions," American Economic Review, American Economic Association, pages 1350-1368.
    31. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-273, May.
    32. Hamermesh, Daniel S, 1989. "Labor Demand and the Structure of Adjustment Costs," American Economic Review, American Economic Association, pages 674-689.
    33. Steven J. Davis & R. Jason Faberman & John Haltiwanger, 2006. "The Flow Approach to Labor Markets: New Data Sources and Micro-Macro Links," Journal of Economic Perspectives, American Economic Association, vol. 20(3), pages 3-26, Summer.
    34. Rebitzer, James B. & Taylor, Lowell J., 1995. "The consequences of minimum wage laws Some new theoretical ideas," Journal of Public Economics, Elsevier, pages 245-255.
    35. R. Kaj Gittings & Ian M. Schmutte, 2016. "Getting Handcuffs on an Octopus," ILR Review, Cornell University, ILR School, vol. 69(5), pages 1133-1170, October.
    36. Jeffrey R. Campbell & Beverly Lapham, 2004. "Real Exchange Rate Fluctuations and the Dynamics of Retail Trade Industries on the U. S.-Canada Border," American Economic Review, American Economic Association, pages 1194-1206.
    37. Gourio, François, 2011. "Putty-clay technology and stock market volatility," Journal of Monetary Economics, Elsevier, vol. 58(2), pages 117-131, March.
    38. John Kennan, 1995. "The Elusive Effects of Minimum Wages," Journal of Economic Literature, American Economic Association, pages 1950-1965.
    39. Daniel Aaronson & Eric French & James MacDonald, 2008. "The Minimum Wage, Restaurant Prices, and Labor Market Structure," Journal of Human Resources, University of Wisconsin Press, vol. 43(3), pages 688-720.
    40. Seltzer, Andrew J., 1997. "The Effects of the Fair Labor Standards Act of 1938 on the Southern Seamless Hosiery and Lumber Industries," The Journal of Economic History, Cambridge University Press, vol. 57(02), pages 396-415, June.
    41. Simon Gilchrist & John C. Williams, 2000. "Putty-Clay and Investment: A Business Cycle Analysis," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 928-960, October.
    42. Bhaskar, V & To, Ted, 1999. "Minimum Wages for Ronald McDonald Monopsonies: A Theory of Monopsonistic Competition," Economic Journal, Royal Economic Society, vol. 109(455), pages 190-203, April.
    43. Daniel S. Hamermesh, 1993. "Labor Demand and the Source of Adjustment Costs," NBER Working Papers 4394, National Bureau of Economic Research, Inc.
    44. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-1150, September.
    45. John Kennan, 1995. "The Elusive Effects of Minimum Wages," Journal of Economic Literature, American Economic Association, pages 1950-1965.
    46. Tom Ahn & Peter Arcidiacono & Walter Wessels, 2011. "The Distributional Impacts of Minimum Wage Increases When Both Labor Supply and Labor Demand Are Endogenous," Journal of Business & Economic Statistics, Taylor & Francis Journals, pages 12-23.
    47. Michael P. Keane & Kenneth I. Wolpin, 2002. "Estimating Welfare Effects Consistent with Forward-Looking Behavior. Part II: Empirical Results," Journal of Human Resources, University of Wisconsin Press, vol. 37(3), pages 600-622.
    48. 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.
    49. Caballero, Ricardo J & Hammour, Mohamad L, 1994. "The Cleansing Effect of Recessions," American Economic Review, American Economic Association, pages 1350-1368.
    50. Ethan Lewis, 2011. "Immigration, Skill Mix, and Capital Skill Complementarity," The Quarterly Journal of Economics, Oxford University Press, vol. 126(2), pages 1029-1069.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jeffrey Clemens, 2015. "The Minimum Wage and the Great Recession: Evidence from the Current Population Survey," NBER Working Papers 21830, National Bureau of Economic Research, Inc.
    2. George Economides & Thomas Moutos, 2016. "Can Minimum Wages Raise Workers' Incomes in the Long Run?," CESifo Working Paper Series 5913, CESifo Group Munich.
    3. Michael R. Strain & Peter Brummund, 2016. "Real and permanent minimum wages," AEI Economics Working Papers 875967, American Enterprise Institute.
    4. David Pence Slichter, 2015. "The Employment Effects of the Minimum Wage: A Selection Ratio Approach to Measuring Treatment Effects," 2015 Papers psl76, Job Market Papers.
    5. Jeffrey Clemens & Michael R. Strain, 2017. "Estimating the Employment Effects of Recent Minimum Wage Changes: Early Evidence, an Interpretative Framework, and a Pre-Commitment to Future Analysis," NBER Working Papers 23084, National Bureau of Economic Research, Inc.
    6. repec:fan:ecaqec:v:html10.3280/ecag2017-001002 is not listed on IDEAS
    7. Brian Bell & Stephen Machin, 2018. "Minimum Wages and Firm Value," Journal of Labor Economics, University of Chicago Press, vol. 36(1), pages 159-195.
    8. Lordan, Grace & Neumark, David, 2017. "People versus machines: the impact of minimum wages on automatable," LSE Research Online Documents on Economics 84060, London School of Economics and Political Science, LSE Library.
    9. Aaronson, Daniel & French, Eric Baird & Sorkin, Isaac, 2016. "Industry Dynamics and the Minimum Wage: A Putty-Clay Approach," CEPR Discussion Papers 11097, C.E.P.R. Discussion Papers.
    10. Grace Lordan & David Neumark, 2017. "People Versus Machines: The Impact of Minimum Wages on Automatable Jobs," NBER Working Papers 23667, National Bureau of Economic Research, Inc.
    11. John Horton, 2017. "Price Floors and Employer Preferences: Evidence from a Minimum Wage Experiment," CESifo Working Paper Series 6548, CESifo Group Munich.
    12. Daniel Aaronson & Brian Phelan, 2016. "Wage Shocks and the Technological Substitution of Low-Wage Jobs," Upjohn Working Papers and Journal Articles 17-266, W.E. Upjohn Institute for Employment Research.
    13. repec:hur:ijaraf:v:7:y:2017:i:3:p:6-13 is not listed on IDEAS
    14. David Neumark, 2017. "The Employment Effects of Minimum Wages: Some Questions We Need to Answer," NBER Working Papers 23584, National Bureau of Economic Research, Inc.
    15. Clemens, Jeffrey, 2017. "The Minimum Wage and the Great Recession: A Response to Zipperer and Recapitulation of the Evidence," MPRA Paper 80153, University Library of Munich, Germany.
    16. Aaronson, Daniel & French, Eric & Sorkin, Isaac, 2013. "Firm Dynamics and the Minimum Wage: A Putty-Clay Approach," Working Paper Series WP-2013-26, Federal Reserve Bank of Chicago.

    More about this item

    Keywords

    Labor demand; Putty-clay; Minimum wages; Dynamic models;

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:red:issued:13-225. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann). General contact details of provider: http://edirc.repec.org/data/sedddea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.