Working Paper: NBER ID: w0652
Authors: John F. Boschen; Herschel I. Grossman
Abstract: This study investigates the effects of Federal minimum wage policy on mini-mum wage employment, aggregate employment, and average wage rates. The theoretical analysis focuses on the possible effect of the Federal minimum wage in constraining wages and employment in a subset of labor markets, on the possible responses of labor suppliers to these constraints, and on the possible role of the policy of presetting the nominal minimum wage in making monetary policy nonneutral. Among the elements of the theoretical framework that are both distinctive and important are the assumptions that both the demands and supplies of labor services in the subset of constrained markets depend on the expected relative minimum wage in the near and distant future, as well as on the current relative minimum wage and on past levels of employment, and that the relevant expectations of both workers and employers about relative minimum wages are "rational."
Keywords: Minimum Wage; Employment; Inflation; Labor Markets
JEL Codes: J38; E24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increases in the federal minimum wage (J38) | Decrease in current employment in industries with a high proportion of minimum wage workers (F66) |
| Increases in the federal minimum wage (J38) | Decrease in employment among teenagers (J63) |
| Current or near-future federal minimum wage (J38) | No significant effect on overall aggregate employment (J23) |
| Current or near-future federal minimum wage (J38) | No significant effect on average wage rates (J39) |
| Monetary policy (E52) | Real value of the minimum wage (J38) |
| Proposed indexation of the minimum wage (J38) | Varying effects on employment depending on relationship between minimum wage levels and wage inflation expectations (F66) |