Do Minimum Wages Really Reduce Teen Employment? Accounting for Heterogeneity and Selectivity in State Panel Data

36 Pages Posted: 28 Mar 2011

See all articles by Sylvia A. Allegretto

Sylvia A. Allegretto

University of Colorado at Boulder - Department of Economics

Arindrajit Dube

University of California, Berkeley - Institute for Research on Labor and Employment

Michael Reich

University of California, Berkeley - Department of Economics

Date Written: April 1, 2011

Abstract

Traditional estimates that often find minimum wage disemployment effects include controls for state unemployment rates and state- and year-fixed effects. Using CPS data on teens for the period 1990-2009, we show that such estimates fail to account for heterogeneous employment patterns that are correlated with selectivity among states with minimum wages. As a result, the estimates are often biased and not robust to the source of identifying variation. Including controls for long-term growth differences among states and for heterogeneous economic shocks renders the employment and hours elasticities indistinguishable from zero and rules out any but very small disemployment effects. Dynamic evidence further shows the nature of bias in traditional estimates, and it also rules out all but very small negative long-run effects. In addition, we do not find evidence that employment effects vary in different parts of the business cycle. We also consider predictable versus unpredictable changes in the minimum wage by looking at the effects of state indexation of the minimum wage.

Suggested Citation

Allegretto, Sylvia A. and Dube, Arindrajit and Reich, Michael, Do Minimum Wages Really Reduce Teen Employment? Accounting for Heterogeneity and Selectivity in State Panel Data (April 1, 2011). Industrial Relations: A Journal of Economy and Society, Vol. 50, No. 2, pp. 205-240, 2011. Available at SSRN: https://ssrn.com/abstract=1794839 or http://dx.doi.org/10.1111/j.1468-232X.2011.00634.x

Sylvia A. Allegretto (Contact Author)

University of Colorado at Boulder - Department of Economics ( email )

Campus Box 256
Boulder, CO 80309-0256
United States

Arindrajit Dube

University of California, Berkeley - Institute for Research on Labor and Employment ( email )

2521 Channing Way #5555
Berkeley, CA 94720
United States
510-642-9951 (Phone)

HOME PAGE: http://www.irle.berkeley.edu/cwed/dube.html

Michael Reich

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States
510-643-7079 (Phone)
510-642-6432 (Fax)

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