Estimating Employment Impacts with Binding Minimum Wage Constraints

Abstract:     
This article examines the impact of rising minimum wages on employment in New Zealand over the time period 1986–2004. Detailed wage data from Statistics New Zealand allows the construction of predicted probabilities for each individual in the sample being affected by a rising minimum wage, and hence finding the wage floor binding. These probabilities are then interacted with the real minimum wage level in the employment regressions to ensure analysis is restricted to the individuals most at risk when the minimum wage is raised. Comparing results before and after using these binding constraints in the regressions reveal significant negative employment effects of a higher minimum wage.

Number of Pages in PDF File: 16

JEL Classification: J08, J38

Accepted Paper Series