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

Author Info

  • Lee, Wang-Sheng

    ()

    (Deakin University)

  • Suardi, Sandy

    ()

    (La Trobe University)

Abstract

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 Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4748.

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Length: 37 pages
Date of creation: Feb 2010
Date of revision:
Publication status: published in: British Journal of Industrial Relations, 2011, 49, s376 - s401
Handle: RePEc:iza:izadps:dp4748
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Keywords: teenage employment; structural break; minimum wage;

Other versions of this item:

Find related papers by JEL classification:
  • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
  • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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  1. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
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  4. Cooper, Suzanne & Piehl, Anne Morrison & Braga, Anthony & Kennedy, David, 2001. "Testing for Structural Breaks in the Evaluation of Programs," Working Paper Series rwp01-019, Harvard University, John F. Kennedy School of Government.
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  7. 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.
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  9. 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.
  10. 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.
  11. 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.
  12. 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.
  13. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-56, July.
  14. Donald W.K. Andrews, 2002. "End-of-Sample Instability Tests," Cowles Foundation Discussion Papers 1369, Cowles Foundation for Research in Economics, Yale University.
  15. Andrew Leigh, 2007. "Does Raising the Minimum Wage Help the Poor?," The Economic Record, The Economic Society of Australia, vol. 83(263), pages 432-445, December.
  16. Jushan Bai, 1995. "Estimating Multiple Breaks One at a Time," Working papers 95-18, Massachusetts Institute of Technology (MIT), Department of Economics.
  17. 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.
  18. 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.
  19. 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.
  20. 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.
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