Working Paper: NBER ID: w20619
Authors: David Neumark; J. Ian Salas; William Wascher
Abstract: A central issue in estimating the employment effects of minimum wages is the appropriate comparison group for states (or other regions) that adopt or increase the minimum wage. In recent research, Dube et al. (2010) and Allegretto et al. (2011) argue that past U.S. research is flawed because it does not restrict comparison areas to those that are geographically proximate and fails to control for changes in low-skill labor markets that are correlated with minimum wage increases. They argue that using "local controls" establishes that higher minimum wages do not reduce employment of less-skilled workers. In Neumark et al. (2014), we present evidence that their methods fail to isolate more reliable identifying information and lead to incorrect conclusions. Moreover, for subsets of treatment groups where the identifying variation they use is supported by the data, the evidence is consistent with past findings of disemployment effects. Allegretto et al. (2013) have challenged our conclusions, continuing the debate regarding some key issues regarding choosing comparison groups for estimating minimum wage effects. We explain these issues and evaluate the evidence. In general, we find little basis for their analyses and conclusions, and argue that the best evidence still points to job loss from minimum wages for very low-skilled workers - in particular, for teens.
Keywords: minimum wage; employment effects; labor market; spatial heterogeneity
JEL Codes: J23; J38; J88
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| local controls (E61) | biased estimates of minimum wage effects (J38) |
| broader control groups (C92) | negative employment effects from minimum wage increases (F66) |
| inadequate control for confounding factors (C90) | flawed conclusions by Dube and Allegretto (J79) |
| failure to isolate reliable identifying information (Y50) | incorrect conclusions by Dube and Allegretto (J79) |
| increased minimum wages (J38) | job loss among low-skilled workers (F66) |