Working Paper: NBER ID: w18681
Authors: David Neumark; J.M. Ian Salas; William Wascher
Abstract: We revisit the minimum wage-employment debate, which is as old as the Department of Labor. In particular, we assess new studies claiming that the standard panel data approach used in much of the "new minimum wage research" is flawed because it fails to account for spatial heterogeneity. These new studies use research designs intended to control for this heterogeneity and conclude that minimum wages in the United States have not reduced employment. We explore the ability of these research designs to isolate reliable identifying information and test the untested assumptions in this new research about the construction of better control groups. Our evidence points to serious problems with these research designs. Moreover, new evidence based on methods that let the data identify the appropriate control groups leads to stronger evidence of disemployment effects, with teen employment elasticities near −0.3. We conclude that the evidence still shows that minimum wages pose a tradeoff of higher wages for some against job losses for others, and that policymakers need to bear this tradeoff in mind when making decisions about increasing the minimum wage.
Keywords: Minimum Wage; Employment Effects; Labor Economics
JEL Codes: J23; J38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| minimum wage increases (J38) | employment among teenagers (J63) |
| minimum wage increases (J38) | disemployment effects (J65) |
| standard panel data approach (C23) | biased estimates of minimum wage effects (J38) |
| failure to account for spatial heterogeneity (C21) | biased estimates (C51) |
| minimum wage increases (J38) | tradeoff between higher wages and job losses (F66) |