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Product Market Evidence on the Employment Effects of the Minimum Wage

  • Daniel Aaronson
  • Eric French

We infer the employment response to a minimum wage change by calibrating a model of employment for the restaurant industry. Whereas perfect competition implies that employment falls and prices rise after a minimum wage increase, the monopsony model potentially implies the opposite. We show that estimated price responses are consistent with the competitive model. We place fairly tight bounds on the employment response, with the most plausible parameter values suggesting that a 10% increase in the minimum wage lowers low-skill employment by 2%–4% and total restaurant employment by 1%–3%.

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File URL: http://dx.doi.org/10.1086/508734
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Article provided by University of Chicago Press in its journal Journal of Labor Economics.

Volume (Year): 25 (2007)
Issue (Month): ()
Pages: 167-200

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Handle: RePEc:ucp:jlabec:v:25:y:2007:p:167-200
DOI: 10.1086/508734
Contact details of provider: Web page: http://www.journals.uchicago.edu/JOLE/

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  9. Deere, Donald & Murphy, Kevin M & Welch, Finis, 1995. "Employment and the 1990-1991 Minimum-Wage Hike," American Economic Review, American Economic Association, vol. 85(2), pages 232-37, May.
  10. 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.
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  24. 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 175-82, April.
  25. 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 318-50, April.
  26. Machin, Stephen & Manning, Alan, 1996. "Employment and the Introduction of a Minimum Wage in Britain," Economic Journal, Royal Economic Society, vol. 106(436), pages 667-76, May.
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