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Minimum Wages in Puerto Rico: Textbook Case of a Wage Floor?

  • Alida Castillo Freeman
  • Richard B. Freeman

This paper uses time series and cross-industry data on employment and wages in Puerto Rico to assess the effects of applying the U.S. minimum wage to the Puerto Rican labor market. We find that the U.S. minimum has a massive effect on the earnings distribution in Puerto Rico and that it has substantially lowered employment and altered the allocation of labor across industries. The reduction in employment is due to the fact that the minimum has a high level relative to average earnings or productivity, not to an especially high estimated elasticity of employment to the minimum. We claim that the results support the textbook model of the minimum wage more strongly than studies of the minimum in the U.S. because in Puerto Rico the U.S. minimum has "real bite."

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File URL: http://www.nber.org/papers/w3759.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3759.

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Date of creation: Jun 1991
Date of revision:
Handle: RePEc:nbr:nberwo:3759
Note: LS
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  1. 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.
  2. Brown, Charles, 1988. "Minimum Wage Laws: Are They Overrated?," Journal of Economic Perspectives, American Economic Association, vol. 2(3), pages 133-45, Summer.
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