Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties

Abstract

Local case studies of minimum wages typically find no significant employment effects, while studies using national data find some negative effects for teenagers. We argue that heterogeneity in spatial employment trends generates biased estimates in national analyses and causes overstatement of precision in local and national studies. We propose two new local estimators that compare all contiguous counties or metro areas in the U.S. that straddle a state-based minimum wage gradient. We find that the negative elasticities in national fixed-effects models are generated by unobserved heterogeneities in employment trends. Our local estimators are more robust and show no employment effects.

Keywords: Minimum Wage, Restaurants, omitted variable bias, spatial trends

JEL Classification: J23, J31, J42, C33