Revisiting the Minimum Wage-Employment Debate: Throwing Out the Baby with the Bathwater?

73 Pages Posted: 12 Jan 2013

See all articles by David Neumark

David Neumark

University of California, Irvine - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

John Michael Ian S Salas

Harvard University - Center for Population and Development Studies

William Wascher

Board of Governors of the Federal Reserve System - Division of Research and Statistics

Multiple version iconThere are 2 versions of this paper

Date Written: January 2013

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.

Suggested Citation

Neumark, David and Salas, John Michael Ian S and Wascher, William, Revisiting the Minimum Wage-Employment Debate: Throwing Out the Baby with the Bathwater? (January 2013). NBER Working Paper No. w18681. Available at SSRN: https://ssrn.com/abstract=2199738

David Neumark (Contact Author)

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

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National Bureau of Economic Research (NBER)

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IZA Institute of Labor Economics

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John Michael Ian S Salas

Harvard University - Center for Population and Development Studies ( email )

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William Wascher

Board of Governors of the Federal Reserve System - Division of Research and Statistics ( email )

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202-452-3819 (Fax)

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