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Minimum Wages and Employment: A Review of Evidence from the New Minimum Wage Research

  • David Neumark

    ()

    (Department of Economics, University of California-Irvine)

  • William Wascher

    ()

    (Board of Governors of the Federal Reserve System)

We review the burgeoning literature on the employment effects of minimum wages—in the United States and other countries—that was spurred by the "new minimum wage research" beginning in the early 1990's. The wide range of existing estimates makes it difficult for us to draw broad generalizations about the implications of the new minimum wage research. Clearly, no consensus now exists about the overall effects on low-wage employment of an increase in the minimum wage. However, the oft-stated assertion that this recent research fails to support the traditional view that the minimum wage reduces the employment of low-wage workers is clearly incorrect. The overwhelming majority of the studies surveyed in this paper give a relatively consistent (although not always statistically significant) indication of negative employment effects of minimum wages. In addition, among the papers we view as providing the most credible evidence, almost all point to negative employment effects. Moreover, the evidence tends to point to disemployment effects of minimum wages in the United States as well as many other countries. Two potentially more important conclusions emerge from our review. First, we see very few—if any—cases where a study provides convincing evidence of positive employment effects of minimum wages, especially from studies that focus on broader groups (rather than a narrow industry) for which the competitive model predicts disemployment effects. Second, when researchers focus on the least-skilled groups most likely to be adversely affected by minimum wages, we regard the evidence as relatively overwhelming that there are stronger disemployment effects for these groups.

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Paper provided by University of California-Irvine, Department of Economics in its series Working Papers with number 060708.

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Length: 151 pages
Date of creation: Oct 2006
Date of revision: Jan 2007
Handle: RePEc:irv:wpaper:060708
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