Looking for a Needle in a Haystack? A Structural Time Series Model of the Relationship Between Teenage Employment and Minimum Wages in the United States
The work of Card and Krueger has cast doubt on the nature of the relationship between the minimum wage and teenage employment. The earlier "consensus" finding of a small but statistically significant negative effect was based on time series data whereas Card and Krueger's findings are based mainly on cross section data. In this article, we re-examine the time series relationship between minimum wage and teenage employment. We find that previous models break down due to their inability to capture changes in the trend, cyclical and seasonal components of teenage employment. We propose a structural time series model in which these components are treated as stochastic components and which contains the traditional approach as a special case. The model when estimated up to 1979 accurately predicts what happens to teenage employment subsequently, when the minimum wage was frozen after 1981 and then increased quite substantially in the early 1990s. Moreover, we find that there is a significant, negative effect of the minimum wage on teenage employment and its size and significance have hardly changed during the 1980s and early 1990s. Finally, the model remains robust in an out-of-sample test for 1993-99 containing two further minimum wage hikes.
|Date of creation:||01 Aug 2000|
|Date of revision:|
|Contact details of provider:|| Phone: 1 212 998 3820|
Fax: 1 212 995 4487
Web page: http://www.econometricsociety.org/pastmeetings.asp
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Andrew C Harvey & Andrew Scott, 1994.
"Seasonality in Dynamic Regression Models,"
CEP Discussion Papers
dp0184, Centre for Economic Performance, LSE.
- Harvey, Andrew, 1997. "Trends, Cycles and Autoregressions," Economic Journal, Royal Economic Society, vol. 107(440), pages 192-201, January.
- Stephen Bazen & Velayoudom Marimoutou, 2002.
"Looking for a Needle in a Haystack? A Re-examination of the Time Series Relationship between Teenage Employment and Minimum Wages in the United States,"
Oxford Bulletin of Economics and Statistics,
Department of Economics, University of Oxford, vol. 64(s1), pages 699-725, 08.
- Bazen, Stephen & Marimoutou, Velayoudom, 2002. " Looking for a Needle in a Haystack? A Re-examination of the Time Series Relationship between Teenage Employment and Minimum Wages in the United States," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 64(0), pages 699-725, Supplemen.
- 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.
- S. Krane & W. Wascher, 1999.
"The cyclical sensitivity of seasonality in US employment,"
BIS Working Papers
67, Bank for International Settlements.
- Krane, Spencer & Wascher, William, 1999. "The cyclical sensitivity of seasonality in U.S. employment," Journal of Monetary Economics, Elsevier, vol. 44(3), pages 523-553, December.
- Spencer D. Krane & William L. Wascher, 1995. "The cyclical sensitivity of seasonality in U.S. employment," Finance and Economics Discussion Series 95-43, Board of Governors of the Federal Reserve System (U.S.).
- Harvey, A C, et al, 1986. "Stochastic Trends in Dynamic Regression Models: An Application to the Employment-Output Equations," Economic Journal, Royal Economic Society, vol. 96(384), pages 975-85, December.
- Charles Brown & Curtis Gilroy & Andrew Kohen, 1981.
"Time-Series Evidence of the Effect of the Minimum Wage on Youth Employment and Unemployment,"
NBER Working Papers
0790, National Bureau of Economic Research, Inc.
- Charles Brown & Curtis Gilroy & Andrew Kohen, 1983. "Time-Series Evidence of the Effect of the Minimum Wage on Youth Employment and Unemployment," Journal of Human Resources, University of Wisconsin Press, vol. 18(1), pages 3-31.
When requesting a correction, please mention this item's handle: RePEc:ecm:wc2000:0495. 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: (Christopher F. Baum)
If references are entirely missing, you can add them using this form.