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Minimum Wages and Employment: Reconsidering the Use of a Time-Series Approach as an Evaluation Tool

  • Wang-Sheng Lee

    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

  • Sandy Suardi

    (Department of Economics and Finance, La Trobe University)

The time-series approach used in the minimum wage literature essentially aims to estimate a treatment effect of increasing the minimum wage. In this paper, we employ a novel approach based on aggregate time-series data that allows us to determine if minimum wage changes have significant effects on employment. This involves the use of tests for structural breaks as a device for identifying discontinuities in the data which potentially represent treatment effects. In an application based on Australian data, the tentative conclusion is that the introduction of minimum wage legislation in Australia in 1997 and subsequent minimum wage increases appear not to have had any significant negative employment effects for teenagers.

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Paper provided by Melbourne Institute of Applied Economic and Social Research, The University of Melbourne in its series Melbourne Institute Working Paper Series with number wp2008n20.

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Length: 33 pages
Date of creation: Oct 2008
Date of revision:
Handle: RePEc:iae:iaewps:wp2008n20
Contact details of provider: Postal: Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, Victoria 3010 Australia
Phone: +61 3 8344 2100
Fax: +61 3 8344 2111
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  1. Zivot, Eric & Andrews, Donald W K, 2002. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 25-44, January.
  2. Hansen, Bruce E, 1997. "Approximate Asymptotic P Values for Structural-Change Tests," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(1), pages 60-67, January.
  3. Jaehwan Park & Ronald Ratti, 1998. "Stationary data and the effect of the minimum wage on teenage employment," Applied Economics, Taylor & Francis Journals, vol. 30(4), pages 435-440.
  4. Bai, Jushan, 1997. "Estimating Multiple Breaks One at a Time," Econometric Theory, Cambridge University Press, vol. 13(03), pages 315-352, June.
  5. Donald W.K. Andrews, 2002. "End-of-Sample Instability Tests," Cowles Foundation Discussion Papers 1369, Cowles Foundation for Research in Economics, Yale University.
  6. 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.
  7. Anne Morrison Piehl & Suzanne J. Cooper & Anthony A. Braga & David M. Kennedy, 1999. "Testing for Structural Breaks in the Evaluation of Programs," NBER Working Papers 7226, National Bureau of Economic Research, Inc.
  8. Fredriksson, Peter & Johansson, Per, 2002. "Program Evaluation and Random Program Starts," Working Paper Series 2003:1, Uppsala University, Department of Economics.
  9. Donald W.K. Andrews, 1990. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Cowles Foundation Discussion Papers 943, Cowles Foundation for Research in Economics, Yale University.
  10. Andrew Leigh, 2005. "Does Raising the Minimum Wage Help the Poor?," CEPR Discussion Papers 501, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  11. Neumark, David & Wascher, William, 2007. "Minimum Wages and Employment," IZA Discussion Papers 2570, Institute for the Study of Labor (IZA).
  12. Ian Watson, 2004. "Minimum Wages and Employment: Comment," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 37(2), pages 166-172, 06.
  13. Harding, Don & Harding, Glenys, 2004. "Minimum wages in Australia: an analysis of the impact on small and medium sized businesses," MPRA Paper 25, University Library of Munich, Germany.
  14. Hristos Doucouliagos & T.D. Stanley, 2008. "Publication Selection Bias in Minimum-Wage Research? A Meta-Regression Analysis," Economics Series 2008_14, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
  15. Andrew Leigh, 2003. "Employment Effects of Minimum Wages: Evidence from a Quasi-Experiment," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 36(4), pages 361-373.
  16. Alison J. Wellington, 1991. "Effects of the Minimum Wage on the Employment Status of Youths: An Update," Journal of Human Resources, University of Wisconsin Press, vol. 26(1), pages 27-46.
  17. Matthew James & Mark Wooden & Peter Dawkins, 2001. "Minimum Wages And The Fallacy Of The Inflated Denominator," Economic Papers, The Economic Society of Australia, vol. 20(3), pages 59-70, 09.
  18. Perron, P, 1988. "The Great Crash, The Oil Price Shock And The Unit Root Hypothesis," Papers 338, Princeton, Department of Economics - Econometric Research Program.
  19. Lechner, Michael, 1999. "Earnings and Employment Effects of Continuous Off-the-Job Training in East Germany after Unification," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(1), pages 74-90, January.
  20. 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.
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