Working Paper: NBER ID: w13012
Authors: Erzo FP Luttmer
Abstract: This paper investigates whether the minimum wage leads to inefficient job rationing. By not allowing wages to clear the labor market, the minimum wage could cause workers with low reservation wages to be rationed out while equally skilled workers with higher reservation wages are employed. This paper exploits the overlapping nature of the CPS panels to more precisely identify those most affected by the minimum wage, a group I refer to as the "unskilled." I test for inefficient rationing by examining whether the reservation wages of employed unskilled workers in states where the 1990-1991 federal minimum wage increase had the largest impact rose relative to reservation wages of unskilled workers in other states. I find that reservation wages of unskilled workers in high-impact states did not rise relative to reservation wages in other states, indicating that the increase in the minimum wage did not cause jobs to be allocated less efficiently.
Keywords: minimum wage; inefficient rationing; labor market
JEL Codes: D61; J21; J30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increase in federal minimum wage (J38) | Inefficient job rationing among unskilled workers (J68) |
| Average reservation wage of unskilled workers in high-impact states (F66) | Average reservation wage of unskilled workers in other states (J39) |
| Average reservation wage for unskilled workers in high-impact states (F66) | Average reservation wage for unskilled workers (J39) |
| Employment reduction among unskilled workers (F66) | Increased employment among low-skilled workers (F66) |