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Minimum Wage Shocks, Employment Flows and Labor Market Frictions

  • Dube, Arindrajit
  • Lester, T. William
  • Reich, Michael

We provide the first estimates of the effects of minimum wages on employment flows in the U.S. labor market, identifying the impact using policy discontinuities at state borders. We find that minimum wages have a sizable negative effect on employment flows but not stocks: separations and accessions fall among affected workers. We interpret our findings using a job-ladder model, in which minimum wage increases can reduce job-to-job transitions. We find that a standard calibration of the model generates predicted relative magnitudes of the employment stock and flow elasticities that are very close to our reduced-form estimates.

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Paper provided by Institute of Industrial Relations, UC Berkeley in its series Institute for Research on Labor and Employment, Working Paper Series with number qt76p927ks.

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Date of creation: 06 Apr 2012
Date of revision:
Handle: RePEc:cdl:indrel:qt76p927ks
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  1. John Abowd & Bryce Stephens & Lars Vilhuber, 2006. "The LEHD Infrastructure Files and the Creation of the Quarterly Workforce Indicators," Longitudinal Employer-Household Dynamics Technical Papers 2006-01, Center for Economic Studies, U.S. Census Bureau.
  2. A. Colin Cameron & Jonah B. Gelbach & Douglas L. Miller, 2006. "Robust Inference with Multi-way Clustering," NBER Technical Working Papers 0327, National Bureau of Economic Research, Inc.
  3. 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.
  4. Barbara Petrongolo & Christopher Pissarides, 2000. "Looking into the black box: a survey of the matching function," LSE Research Online Documents on Economics 2122, London School of Economics and Political Science, LSE Library.
  5. repec:pri:indrel:554 is not listed on IDEAS
  6. Christian Bontemps & Jean-Marc Robin & Gérard J. Van den Berg, 1999. "An Empirical Equilibrium Job Search Model With Search on the Job and Heterogeneous Workers and Firms," Post-Print hal-00357757, HAL.
  7. Katharine G. Abraham, 2009. "Comment on "The LEHD Infrastructure Files and the Creation of the Quarterly Workforce Indicators"," NBER Chapters, in: Producer Dynamics: New Evidence from Micro Data, pages 230-234 National Bureau of Economic Research, Inc.
  8. Orley C. Ashenfelter & Henry Farber & Michael R. Ransom, 2010. "Modern Models of Monopsony in Labor Markets: A Brief Survey," Working Papers 1223, Princeton University, Department of Economics, Industrial Relations Section..
  9. Pol Antràs & Ricardo J. Caballero, 2007. "Trade and Capital Flows: A Financial Frictions Perspective," NBER Working Papers 13241, National Bureau of Economic Research, Inc.
  10. Pedro Portugal & Ana Rute Cardoso, 2006. "Disentangling the Minimum Wage Puzzle: An Analysis of Worker Accessions and Separations," Journal of the European Economic Association, MIT Press, vol. 4(5), pages 988-1013, 09.
  11. John T. Addison & McKinley L. Blackburn & Chad D. Cotti, 2008. "The Effect of Minimum Wages on Labor Market Outcomes: County-Level Estimates from the Restaurant-and-Bar Sector," Working Paper Series 02_08, The Rimini Centre for Economic Analysis.
  12. Andreas Hornstein & Per Krusell & Giovanni L. Violante, 2011. "Frictional Wage Dispersion in Search Models: A Quantitative Assessment," American Economic Review, American Economic Association, vol. 101(7), pages 2873-98, December.
  13. Allegretto, Sylvia & Dube, Arindrajit & Reich, Michael, 2010. "Do Minimum Wages Really Reduce Teen Employment? Accounting for Heterogeneity and Selectivity in State Panel Data," Institute for Research on Labor and Employment, Working Paper Series qt7jq2q3j8, Institute of Industrial Relations, UC Berkeley.
  14. 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.
  15. Neumark, David & Wascher, William, 2007. "Minimum Wages, the Earned Income Tax Credit, and Employment: Evidence from the Post-Welfare Reform Era," IZA Discussion Papers 2610, Institute for the Study of Labor (IZA).
  16. Ashenfelter, Orley & Farber, Henry S & Ransom, Michael R., 2010. "Modern Models of Monopsony in Labor Markets: A Brief Survey," IZA Discussion Papers 4915, Institute for the Study of Labor (IZA).
  17. Addison, John T. & Blackburn, McKinley L. & Cotti, Chad D., 2009. "Do minimum wages raise employment? Evidence from the U.S. retail-trade sector," Labour Economics, Elsevier, vol. 16(4), pages 397-408, August.
  18. Arindrajit Dube & Suresh Naidu & Michael Reich, 2007. "The Economic Effects of a Citywide Minimum Wage," ILR Review, Cornell University, ILR School, vol. 60(4), pages 522-543, July.
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