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Are There Long-Run Effects of the Minimum Wage?

  • Isaac Sorkin

    (University of Michigan)

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)

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File URL: http://dx.doi.org/10.1016/j.red.2014.05.003
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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

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