IDEAS home Printed from https://ideas.repec.org/a/zbw/ifweej/201715.html
   My bibliography  Save this article

Minimum wage and employment: Escaping the parametric straitjacket

Author

Listed:
  • Cabras, Stefano
  • Fidrmuc, Jan
  • de Dios Tena Horrillo, Juan

Abstract

Parametric regression models are often not flexible enough to capture the true relationships as they tend to rely on arbitrary identification assumptions. Using the UK Labor Force Survey, the authors estimate the causal effect of national minimum wage (NMW) increases on the probability of job entry and job exit by means of a non-parametric Bayesian modelling approach known as Bayesian Additive Regression Trees (BART). The application of this methodology has the important advantage that it does not require ad-hoc assumptions about model fitting, number of covariates and how they interact. They find that the NMW exerts a positive and significant impact on both the probability of job entry and job exit. Although the magnitude of the effect on job entry is higher, the overall effect of NMW is ambiguous as there are many more employed workers. The causal effect of NMW is higher for young workers and in periods of high unemployment and they have a stronger impact on job entry decisions. No significant interactions were found with gender and qualifications.

Suggested Citation

  • Cabras, Stefano & Fidrmuc, Jan & de Dios Tena Horrillo, Juan, 2017. "Minimum wage and employment: Escaping the parametric straitjacket," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 11, pages 1-20.
    • Handle: RePEc:zbw:ifweej:201715
    DOI: 10.5018/economics-ejournal.ja.2017-15
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.5018/economics-ejournal.ja.2017-15
    Download Restriction: no
    File URL: https://www.econstor.eu/bitstream/10419/161934/1/889537879.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.5018/economics-ejournal.ja.2017-15?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Sylvia Allegretto & Arindrajit Dube & Michael Reich & Ben Zipperer, 2017. "Credible Research Designs for Minimum Wage Studies," ILR Review, Cornell University, ILR School, vol. 70(3), pages 559-592, May.
    2. S. Petrone & J. Rousseau & C. Scricciolo, 2014. "Bayes and empirical Bayes: do they merge?," Biometrika, Biometrika Trust, vol. 101(2), pages 285-302.
    3. Sylvia A. Allegretto & Arindrajit Dube & Michael Reich, 2011. "Do Minimum Wages Really Reduce Teen Employment? Accounting for Heterogeneity and Selectivity in State Panel Data," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 50(2), pages 205-240, April.
    4. Card, David & Krueger, Alan B, 1995. "Time-Series Minimum-Wage Studies: A Meta-analysis," American Economic Review, American Economic Association, vol. 85(2), pages 238-243, May.
    5. Mark B. Stewart, 2004. "The employment effects of the national minimum wage," Economic Journal, Royal Economic Society, vol. 114(494), pages 110-116, March.
    6. Barry T. Hirsch & Bruce E. Kaufman & Tetyana Zelenska, 2015. "Minimum Wage Channels of Adjustment," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 54(2), pages 199-239, April.
    7. repec:dau:papers:123456789/10788 is not listed on IDEAS
    8. Marco Caliendo & Sabine Kopeinig, 2008. "Some Practical Guidance For The Implementation Of Propensity Score Matching," Journal of Economic Surveys, Wiley Blackwell, vol. 22(1), pages 31-72, February.
    9. Richard Dickens & Mirko Draca, 2005. "The Employment Effects of the October 2003 Increase in the National Minimum Wage," CEP Discussion Papers dp0693, Centre for Economic Performance, LSE.
    10. Lee, Kevin C & Pesaran, M Hashem & Pierse, Richard G, 1990. "Testing for Aggregation Bias in Linear Models," Economic Journal, Royal Economic Society, vol. 100(400), pages 137-150, Supplemen.
    11. Richard Dickens & Mirko Draca, 2005. "The Employment Effects of the October 2003 Increase in the National Minimum Wage," Working Papers 532, Queen Mary University of London, School of Economics and Finance.
    12. Hristos Doucouliagos & T. D. Stanley, 2009. "Publication Selection Bias in Minimum‐Wage Research? A Meta‐Regression Analysis," British Journal of Industrial Relations, London School of Economics, vol. 47(2), pages 406-428, June.
    13. Alberto Abadie & Guido W. Imbens, 2006. "Large Sample Properties of Matching Estimators for Average Treatment Effects," Econometrica, Econometric Society, vol. 74(1), pages 235-267, January.
    14. 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.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fidrmuc, Jan & Tena, J. D., 2018. "UK national minimum wage and labor market outcomes of young workers," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 12, pages 1-28.
    2. David Neumark & Peter Shirley, 2022. "Myth or measurement: What does the new minimum wage research say about minimum wages and job loss in the United States?," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 61(4), pages 384-417, October.
    3. John Addison & McKinley Blackburn & Chad Cotti, 2015. "On the robustness of minimum wage effects: geographically-disparate trends and job growth equations," IZA Journal of Labor Economics, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-16, December.
    4. Brewer, Mike & Crossley, Thomas F. & Zilio, Federico, 2019. "What Do We Really Know about the Employment Effects of the UK's National Minimum Wage?," IZA Discussion Papers 12369, Institute of Labor Economics (IZA).
    5. John Addison & McKinley Blackburn & Chad Cotti, 2015. "On the robustness of minimum wage effects: geographically-disparate trends and job growth equations," IZA Journal of Labor Economics, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-16, December.
    6. Mr. Yifei Huang & Mr. Prakash Loungani & Gewei Wang, 2014. "Minimum Wages and Firm Employment: Evidence from China," IMF Working Papers 2014/184, International Monetary Fund.
    7. Ernest Boffy-Ramirez, 2022. "Push or Pull? Measuring the labor supply response to the minimum wage using an individual-level panel," Applied Economics, Taylor & Francis Journals, vol. 54(35), pages 4043-4059, July.
    8. Redmond, Paul & McGuinness, Seamus, 2023. "The Impact of a Minimum Wage Increase on Hours Worked: Heterogeneous Effects by Gender and Sector," IZA Discussion Papers 16031, Institute of Labor Economics (IZA).
    9. Young Cheol Jung & Adian McFarlane & Anupam Das, 2021. "The effect of minimum wages on consumption in Canada," The Economic and Labour Relations Review, , vol. 32(1), pages 65-89, March.
    10. Alessandra Brito & Miguel Foguel & Celia Kerstenetzky, 2017. "The contribution of minimum wage valorization policy to the decline in household income inequality in Brazil: A decomposition approach," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 40(4), pages 540-575, October.
    11. Loukas Karabarbounis & Jeremy Lise & Anusha Nath, 2022. "Minimum Wages and Labor Markets in the Twin Cities," Working Papers 793, Federal Reserve Bank of Minneapolis.
    12. Schumann, Mathias, 2017. "The effects of minimum wages on firm-financed apprenticeship training," Labour Economics, Elsevier, vol. 47(C), pages 163-181.
    13. Evan Totty, 2017. "The Effect Of Minimum Wages On Employment: A Factor Model Approach," Economic Inquiry, Western Economic Association International, vol. 55(4), pages 1712-1737, October.
    14. Haroon Bhorat & Tara Caetano & Benjamin Jourdan & Ravi Kanbur & Christopher Rooney & Benjamin Stanwix & Ingrid Woolard, 2016. "Investigating the Feasibility of a National Minimum Wage for South Africa," Working Papers 201601, University of Cape Town, Development Policy Research Unit.
    15. Yang, Qiming & Zhang, Xiaobo & Zhu, Wu, 2016. "Have Chinese firms become smaller? If so, why?:," IFPRI discussion papers 1558, International Food Policy Research Institute (IFPRI).
    16. Ekaterina Jardim & Mark C. Long & Robert Plotnick & Emma van Inwegen & Jacob Vigdor & Hilary Wething, 2018. "Minimum Wage Increases and Individual Employment Trajectories," NBER Working Papers 25182, National Bureau of Economic Research, Inc.
    17. Boffy-Ramirez, Ernest, 2019. "The Short-Run Effects of the Minimum Wage on Employment and Labor Market Participation: Evidence from an Individual-Level Panel," IZA Discussion Papers 12137, Institute of Labor Economics (IZA).
    18. Michael R. Strain & Peter Brummund, 2016. "Real and permanent minimum wages," AEI Economics Working Papers 875967, American Enterprise Institute.
    19. Salverda, Wiemer & Checchi, Daniele, 2014. "Labour-Market Institutions and the Dispersion of Wage Earnings," IZA Discussion Papers 8220, Institute of Labor Economics (IZA).
    20. David Neumark, 2016. "Policy levers to increase jobs and increase income from work after the Great Recession," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 5(1), pages 1-38, December.

    More about this item

    Keywords

    BART; causal inference; regression approach; matching regression;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J4 - Labor and Demographic Economics - - Particular Labor Markets

    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:zbw:ifweej:201715. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/iwkiede.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.