IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_7386.html
   My bibliography  Save this paper

The Econometrics and Economics of the Employment Effects of Minimum Wages: Getting from Known Unknowns to Known Knowns

Author

Listed:
  • David Neumark

Abstract

I discuss the econometrics and the economics of past research on the effects of minimum wages on employment in the United States. My intent is to try to identify key questions raised in the recent literature, and some from the earlier literature, which I think hold the most promise for understanding the conflicting evidence and arriving at a more definitive answer about the employment effects of minimum wages. My secondary goal is to discuss how we can narrow the range of uncertainty about the likely effects of the large minimum wage increases becoming more prevalent in the United States. I discuss some insights from both theory and past evidence that may be informative about the effects of high minimum wages, and try to emphasize what research can be done now and in the near future to provide useful evidence to policymakers on the results of the coming high minimum wage experiment, whether in the United States or in other countries.

Suggested Citation

  • David Neumark, 2018. "The Econometrics and Economics of the Employment Effects of Minimum Wages: Getting from Known Unknowns to Known Knowns," CESifo Working Paper Series 7386, CESifo.
  • Handle: RePEc:ces:ceswps:_7386
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo1_wp7386.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. David Card, 1992. "Using Regional Variation in Wages to Measure the Effects of the Federal Minimum Wage," Working Papers 680, Princeton University, Department of Economics, Industrial Relations Section..
    2. Lordan, Grace & Neumark, David, 2018. "People versus machines: The impact of minimum wages on automatable jobs," Labour Economics, Elsevier, vol. 52(C), pages 40-53.
    3. 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.
    4. Arindrajit Dube & T. William Lester & Michael Reich, 2016. "Minimum Wage Shocks, Employment Flows, and Labor Market Frictions," Journal of Labor Economics, University of Chicago Press, vol. 34(3), pages 663-704.
    5. David Neumark & William Wascher, 2017. "Reply to “Credible Research Designs for Minimum Wage Studiesâ€," ILR Review, Cornell University, ILR School, vol. 70(3), pages 593-609, May.
    6. M. Hashem Pesaran, 2006. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," Econometrica, Econometric Society, vol. 74(4), pages 967-1012, July.
    7. Card, David & Krueger, Alan B, 1994. "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania," American Economic Review, American Economic Association, vol. 84(4), pages 772-793, September.
    8. 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.
    9. Caliendo, Marco & Fedorets, Alexandra & Preuss, Malte & Schröder, Carsten & Wittbrodt, Linda, 2018. "The short-run employment effects of the German minimum wage reform," Labour Economics, Elsevier, vol. 53(C), pages 46-62.
    10. Charles Brown & Curtis Gilroy & Andrew Kohen, 1982. "The Effect of the Minimum Wage on Employment and Unemployment: A Survey," NBER Working Papers 0846, National Bureau of Economic Research, Inc.
    11. McVicar Duncan & Park Andrew & McGuinness Seamus, 2019. "Exploiting the Irish Border to Estimate Minimum Wage Impacts in Northern Ireland," IZA Journal of Labor Economics, Sciendo & Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 8(1), pages 565-640, June.
    12. David Neumark & Matthew Thompson & Leslie Koyle, 2012. "The effects of living wage laws on low-wage workers and low-income families: What do we know now?," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 1(1), pages 1-34, December.
    13. David Neumark & JM Salas & William Wascher, 2014. "More on recent evidence on the effects of minimum wages in the United States," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 3(1), pages 1-26, December.
    14. David Card, 1992. "Do Minimum Wages Reduce Employment? A Case Study of California, 1987–89," ILR Review, Cornell University, ILR School, vol. 46(1), pages 38-54, October.
    15. Clemens, Jeffrey & Wither, Michael, 2017. "Additional Evidence and Replication Code for Analyzing the Effects of Minimum Wage Increases Enacted During the Great Recession," MPRA Paper 80155, University Library of Munich, Germany.
    16. Joan Monras, 2019. "Minimum Wages and Spatial Equilibrium: Theory and Evidence," Journal of Labor Economics, University of Chicago Press, vol. 37(3), pages 853-904.
    17. Brown, Alessio J.G. & Merkl, Christian & Snower, Dennis J., 2014. "The minimum wage from a two-sided perspective," Economics Letters, Elsevier, vol. 124(3), pages 389-391.
    18. David Neumark & William Wascher, 2002. "State-Level Estimates of Minimum Wage Effects: New Evidence and Interpretations from Disequilibrium Methods," Journal of Human Resources, University of Wisconsin Press, vol. 37(1), pages 35-62.
    19. Isaac Sorkin, 2015. "Are There Long-Run Effects of the Minimum Wage?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(2), pages 306-333, April.
    20. Doruk Cengiz & Arindrajit Dube & Attila Lindner & Ben Zipperer, 2018. "The effect of minimum wages on low-wage jobs: evidence from the United States using a bunching estimator," CEP Discussion Papers dp1531, Centre for Economic Performance, LSE.
    21. Christl Michael & Köppl-Turyna Monika & Kucsera Dénes, 2018. "Revisiting the Employment Effects of Minimum Wages in Europe," German Economic Review, De Gruyter, vol. 19(4), pages 426-465, December.
    22. Joseph J. Sabia & Richard V. Burkhauser & Benjamin Hansen, 2012. "Are the Effects of Minimum Wage Increases Always Small? New Evidence from a Case Study of New York State," ILR Review, Cornell University, ILR School, vol. 65(2), pages 350-376, April.
    23. Addison, John T. & Blackburn, McKinley L. & Cotti, Chad D., 2013. "Minimum wage increases in a recessionary environment," Labour Economics, Elsevier, vol. 23(C), pages 30-39.
    24. David Neumark & J. M. Ian Salas & William Wascher, 2014. "Revisiting the Minimum Wage—Employment Debate: Throwing Out the Baby with the Bathwater?," ILR Review, Cornell University, ILR School, vol. 67(3_suppl), pages 608-648, May.
    25. 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.
    26. Megan Linde Leonard & T. D. Stanley & Hristos Doucouliagos, 2014. "Does the UK Minimum Wage Reduce Employment? A Meta-Regression Analysis," British Journal of Industrial Relations, London School of Economics, vol. 52(3), pages 499-520, September.
    27. Machin, Stephen & Manning, Alan & Rahman, Lupin, 2002. "Where the minimum wage bites hard: the introduction of the UK national minimum wage to a low wage sector," LSE Research Online Documents on Economics 20070, London School of Economics and Political Science, LSE Library.
    28. Neumark, David & Wascher, William L., 2007. "Minimum Wages and Employment," Foundations and Trends(R) in Microeconomics, now publishers, vol. 3(1–2), pages 1-182, March.
    29. Rosen, Harvey S & Quandt, Richard E, 1978. "Estimation of a Disequilibrium Aggregate Labor Market," The Review of Economics and Statistics, MIT Press, vol. 60(3), pages 371-379, August.
    30. R. Kaj Gittings & Ian M. Schmutte, 2016. "Getting Handcuffs on an Octopus," ILR Review, Cornell University, ILR School, vol. 69(5), pages 1133-1170, October.
    31. 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.
    32. Shanshan Liu & Thomas J. Hyclak & Krishna Regmi, 2016. "Impact of the Minimum Wage on Youth Labor Markets," LABOUR, CEIS, vol. 30(1), pages 18-37, March.
    33. Sarah Bohn & Magnus Lofstrom & Steven Raphael, 2014. "Did the 2007 Legal Arizona Workers Act Reduce the State's Unauthorized Immigrant Population?," The Review of Economics and Statistics, MIT Press, vol. 96(2), pages 258-269, May.
    34. Ekaterina Jardim & Mark C. Long & Robert Plotnick & Emma van Inwegen & Jacob Vigdor & Hilary Wething, 2017. "Minimum Wage Increases, Wages, and Low-Wage Employment: Evidence from Seattle," NBER Working Papers 23532, National Bureau of Economic Research, Inc.
    35. Michele Campolieti & Tony Fang & Morley Gunderson, 2005. "Minimum wage impacts on youth employment transitions, 1993-1999," Canadian Journal of Economics, Canadian Economics Association, vol. 38(1), pages 81-104, February.
    36. Stephen Machin & Alan Manning & Lupin Rahman, 2003. "Where the Minimum Wage Bites Hard: Introduction of Minimum Wages to a Low Wage Sector," Journal of the European Economic Association, MIT Press, vol. 1(1), pages 154-180, March.
    37. David Card, 1992. "Using Regional Variation in Wages to Measure the Effects of the Federal Minimum Wage," ILR Review, Cornell University, ILR School, vol. 46(1), pages 22-37, October.
    38. Jeffrey P. Thompson, 2009. "Using Local Labor Market Data to Re-Examine the Employment Effects of the Minimum Wage," ILR Review, Cornell University, ILR School, vol. 62(3), pages 343-366, April.
    39. Daniel Aaronson & Eric French & Isaac Sorkin & Ted To, 2018. "Industry Dynamics And The Minimum Wage: A Putty†Clay Approach," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 59(1), pages 51-84, February.
    40. repec:ces:ifodic:v:16:y:2019:i:4:p:50000000004800 is not listed on IDEAS
    41. Brown, Charles & Gilroy, Curtis & Kohen, Andrew, 1982. "The Effect of the Minimum Wage on Employment and Unemployment," Journal of Economic Literature, American Economic Association, vol. 20(2), pages 487-528, June.
    42. Freeman, Richard B, 1996. "The Minimum Wage as a Redistributive Tool," Economic Journal, Royal Economic Society, vol. 106(436), pages 639-649, May.
    43. David Neumark & William Wascher, 2004. "Minimum Wages, Labor Market Institutions, and Youth Employment: A Cross-National Analysis," ILR Review, Cornell University, ILR School, vol. 57(2), pages 223-248, January.
    44. Daniel Kuehn, 2016. "Spillover Bias in Cross-Border Minimum Wage Studies: Evidence from a Gravity Model," Journal of Labor Research, Springer, vol. 37(4), pages 441-459, December.
    45. repec:fth:prinin:300 is not listed on IDEAS
    46. Shirley, Peter, 2018. "The response of commuting patterns to cross-border policy differentials: Evidence from the American Community Survey," Regional Science and Urban Economics, Elsevier, vol. 73(C), pages 1-16.
    47. Guido Blasio & Samuele Poy, 2017. "THE IMPACT OF LOCAL WAGE REGULATION ON EMPLOYMENT: A BORDER ANALYSIS FROM ITALY IN THE 1950s," Journal of Regional Science, Wiley Blackwell, vol. 57(1), pages 48-74, January.
    48. Jonathan Meer & Jeremy West, 2016. "Effects of the Minimum Wage on Employment Dynamics," Journal of Human Resources, University of Wisconsin Press, vol. 51(2), pages 500-522.
    49. Clemens, Jeffrey & Wither, Michael, 2019. "The minimum wage and the Great Recession: Evidence of effects on the employment and income trajectories of low-skilled workers," Journal of Public Economics, Elsevier, vol. 170(C), pages 53-67.
    50. Alida Castillo-Freeman & Richard B. Freeman, 1992. "When the Minimum Wage Really Bites: The Effect of the U.S.-Level Minimum on Puerto Rico," NBER Chapters, in: Immigration and the Work Force: Economic Consequences for the United States and Source Areas, pages 177-212, National Bureau of Economic Research, Inc.
    51. Dube, Arindrajit & Zipperer, Ben, 2015. "Pooling Multiple Case Studies Using Synthetic Controls: An Application to Minimum Wage Policies," IZA Discussion Papers 8944, Institute of Labor Economics (IZA).
    52. Saul D. Hoffman, 2016. "Are the Effects of Minimum Wage Increases Always Small? A Reanalysis of Sabia, Burkhauser, and Hansen," ILR Review, Cornell University, ILR School, vol. 69(2), pages 295-311, March.
    53. Dale Belman & Paul J. Wolfson, 2014. "What Does the Minimum Wage Do?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number wdmwd.
    54. John Schmitt, 2015. "Explaining the Small Employment Effects of the Minimum Wage in the United States," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 54(4), pages 547-581, October.
    55. Abadie, Alberto & Diamond, Alexis & Hainmueller, Jens, 2010. "Synthetic Control Methods for Comparative Case Studies: Estimating the Effect of California’s Tobacco Control Program," Journal of the American Statistical Association, American Statistical Association, vol. 105(490), pages 493-505.
    56. Michael R. Strain & Peter Brummund, 2016. "Real and permanent minimum wages," AEI Economics Working Papers 875967, American Enterprise Institute.
    57. David Pence Slichter, 2015. "The Employment Effects of the Minimum Wage: A Selection Ratio Approach to Measuring Treatment Effects," 2015 Papers psl76, Job Market Papers.
    58. Dickens, Richard & Machin, Stephen & Manning, Alan, 1999. "The Effects of Minimum Wages on Employment: Theory and Evidence from Britain," Journal of Labor Economics, University of Chicago Press, vol. 17(1), pages 1-22, January.
    59. Joan Monras, 2019. "Minimum Wages and Spatial Equilibrium: Theory and Evidence," Journal of Labor Economics, University of Chicago Press, vol. 37(3), pages 853-904.
    60. David Fairris & Leon Fernandez Bujanda, 2008. "The Dissipation of Minimum Wage Gains for Workers through Labor-Labor Substitution: Evidence from the Los Angeles Living Wage Ordinance," Southern Economic Journal, John Wiley & Sons, vol. 75(2), pages 473-496, October.
    61. Cadena, Brian C., 2014. "Recent immigrants as labor market arbitrageurs: Evidence from the minimum wage," Journal of Urban Economics, Elsevier, vol. 80(C), pages 1-12.
    62. Neumark, David & Wascher, William, 2003. "Minimum wages and skill acquisition: another look at schooling effects," Economics of Education Review, Elsevier, vol. 22(1), pages 1-10, February.
    63. McKinnish, Terra, 2017. "Cross-state differences in the minimum wage and out-of-state commuting by low-wage workers," Regional Science and Urban Economics, Elsevier, vol. 64(C), pages 137-147.
    64. Jeffrey Clemens & Michael R. Strain, 2018. "The Short‐Run Employment Effects Of Recent Minimum Wage Changes: Evidence From The American Community Survey," Contemporary Economic Policy, Western Economic Association International, vol. 36(4), pages 711-722, October.
    65. 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.
    66. David Neumark & DMark Schweitzer & DaWilliam Wascher, 2004. "Minimum Wage Effects throughout the Wage Distribution," Journal of Human Resources, University of Wisconsin Press, vol. 39(2).
    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. David Neumark & Peter Shirley, 2021. "Myth or Measurement: What Does the New Minimum Wage Research Say about Minimum Wages and Job Loss in the United States?," NBER Working Papers 28388, National Bureau of Economic Research, Inc.
    2. David Neumark, 2017. "The Employment Effects of Minimum Wages: Some Questions We Need to Answer," NBER Working Papers 23584, National Bureau of Economic Research, Inc.
    3. Mario Bossler & Hans-Dieter Gerner, 2020. "Employment Effects of the New German Minimum Wage: Evidence from Establishment-Level Microdata," ILR Review, Cornell University, ILR School, vol. 73(5), pages 1070-1094, October.
    4. Lordan, Grace & Neumark, David, 2018. "People versus machines: The impact of minimum wages on automatable jobs," Labour Economics, Elsevier, vol. 52(C), pages 40-53.
    5. 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.
    6. Laporsek, Suzana & Orazem, Peter F. & Vodopivec, Matija & Vodopivec, Milan, 2019. "Long-Term Responses to Large Minimum Wage Shocks: Sub-Minimum and Super-Minimum Workers in Slovenia," IZA Discussion Papers 12123, Institute of Labor Economics (IZA).
    7. Clemens, Jeffrey & Wither, Michael, 2019. "The minimum wage and the Great Recession: Evidence of effects on the employment and income trajectories of low-skilled workers," Journal of Public Economics, Elsevier, vol. 170(C), pages 53-67.
    8. Ekaterina Jardim & Mark C. Long & Robert Plotnick & Emma van Inwegen & Jacob Vigdor & Hilary Wething, 2017. "Minimum Wage Increases, Wages, and Low-Wage Employment: Evidence from Seattle," NBER Working Papers 23532, National Bureau of Economic Research, Inc.
    9. 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).
    10. Lavecchia, Adam M., 2020. "Minimum wage policy with optimal taxes and unemployment," Journal of Public Economics, Elsevier, vol. 190(C).
    11. Daniel Aaronson & Brian J Phelan, 2019. "Wage Shocks and the Technological Substitution of Low‐wage Jobs," Economic Journal, Royal Economic Society, vol. 129(617), pages 1-34.
    12. Robayo,Monica & Terskaya,Anastasia & Koettl-Brodmann,Stefanie, 2020. "Ex-ante Evaluation of the Impact of Increases in Minimum Wages on Labor Market Outcomes in Kosovo," Policy Research Working Paper Series 9357, The World Bank.
    13. Borgschulte, Mark & Cho, Heepyung, 2018. "Minimum Wages and Retirement," IZA Discussion Papers 11728, Institute of Labor Economics (IZA).
    14. José Azar & Emiliano Huet-Vaughn & Ioana Marinescu & Bledi Taska & Till von Wachter, 2019. "Minimum Wage Employment Effects and Labor Market Concentration," NBER Working Papers 26101, National Bureau of Economic Research, Inc.
    15. Brian Bell & Stephen Machin, 2018. "Minimum Wages and Firm Value," Journal of Labor Economics, University of Chicago Press, vol. 36(1), pages 159-195.
    16. Marius Berger & Bruno Lanz, 2020. "Minimum wage regulation in Switzerland: survey evidence for restaurants in the canton of Neuchâtel," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 156(1), pages 1-23, December.
    17. 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).
    18. Amanda Y. Agan & Michael D. Makowsky, 2018. "The Minimum Wage, EITC, and Criminal Recidivism," Working Papers 616, Princeton University, Department of Economics, Industrial Relations Section..
    19. Schumann, Mathias, 2017. "The effects of minimum wages on firm-financed apprenticeship training," Labour Economics, Elsevier, vol. 47(C), pages 163-181.
    20. Michael R. Strain & Peter Brummund, 2016. "Real and permanent minimum wages," AEI Economics Working Papers 875967, American Enterprise Institute.

    More about this item

    JEL classification:

    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:ces:ceswps:_7386. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    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: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.