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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. Caballero, Ricardo J. & Antras, Pol, 2007. "Trade and Capital Flows: A Financial Frictions Perspective," Scholarly Articles 3264875, Harvard University Department of Economics.
  2. 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.
  3. Barbara Petrongolo & Christopher A. Pissarides, 2000. "Looking Into the Black Box: A Survey of the Matching Function," CEP Discussion Papers dp0470, Centre for Economic Performance, LSE.
  4. John T. Addison & McKinley L. Blackburn & Chad D. Cotti, 2012. "The Effect of Minimum Wages on Labour Market Outcomes: County-Level Estimates from the Restaurant-and-Bar Sector," British Journal of Industrial Relations, London School of Economics, vol. 50(3), pages 412-435, 09.
  5. John M. Abowd & Bryce E. Stephens & Lars Vilhuber & Fredrik Andersson & Kevin L. McKinney & Marc Roemer & Simon Woodcock, 2009. "The LEHD Infrastructure Files and the Creation of the Quarterly Workforce Indicators," NBER Chapters, in: Producer Dynamics: New Evidence from Micro Data, pages 149-230 National Bureau of Economic Research, Inc.
  6. 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..
  7. 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.
  8. Arindrajit Dube & Suresh Naidu & Michael Reich, 2007. "The Economic Effects of a Citywide Minimum Wage," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 60(4), pages 522-543, July.
  9. A. Colin Cameron & Jonah B. Gelbach & Douglas L. Miller, 2011. "Robust Inference With Multiway Clustering," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 29(2), pages 238-249, April.
  10. Andreas Hornstein & Per Krusell & Giovanni L. Violante, 2007. "Frictional Wage Dispersion in Search Models: A Quantitative Assessment," NBER Working Papers 13674, National Bureau of Economic Research, Inc.
  11. Pierre Brochu & David A. Green, 2011. "The impact of minimum wages on quit, layoff and hiring rates," IFS Working Papers W11/06, Institute for Fiscal Studies.
  12. Dube, Andrajit & Lester, T. William & Reich, Michael, 2010. "Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties," Institute for Research on Labor and Employment, Working Paper Series qt86w5m90m, Institute of Industrial Relations, UC Berkeley.
  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. 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.
  15. Jonah B. Gelbach & Doug Miller, 2009. "Robust Inference with Multi-way Clustering," Working Papers 99, University of California, Davis, Department of Economics.
  16. 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.
  17. 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).
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