Federal Minimum Wage Hikes Do Reduce Teenage Employment: The Time Series Effects of Minimum Wages in the US Revisited

Abstract

In 2002 we published a paper in which we used state space time series methods to analyse the teenage employment‐federal minimum wage relationship in the US (Bazen and Marimoutou, 2002). The study used quarterly data for the 46 year period running from 1954 to 1999. We detected a small, negative but statistically significant effect of the federal minimum wage on teenage employment, at a time when some studies were casting doubt on the existence of such an effect. In this note we re‐estimate the original model with a further 16 years of data (up to 2015). We find that the model satisfactorily tracks the path of the teenage employment‐population ratio over this 60 year period, and yields a consistently negative and statistically significant effect of minimum wages on teenage employment. The conclusion reached is the same as in the original paper, and the elasticity estimates very similar: federal minimum wage hikes lead to a reduction in teenage employment with a short run elasticity of around – 0.13. The estimated long run elasticity of between – 0.37 and – 0.47 is less stable, but is nevertheless negative and statistically significant.

Keywords: minimum wage, teenage employment, state space methods, unobserved components model

JEL Classification: J21, J38, C22