The Employment Elasticity of the Minimum Wage: Is It Just Politics after All?
44 Pages Posted: 29 Nov 2017
Date Written: August 24, 2017
The effect of minimum wages on employment is highly disputed.
The main questions in the literature are on how to deal with spatial heterogeneity and dynamics. We use statistical (multi-factor error models) and economic (political ideology as control variable) methods to address the first. Furthermore, we extend the models to a dynamic setting to estimate more long term effects. We find that these enriched models all suggest there are no economically significant negative employment effects attached to moderate increases in the minimum wage.
Keywords: minimum wage, cross-sectional dependence, labour policy, political ideology, common correlated effects models, interactive fixed effects, dynamic factor models, employment elasticity, labour markets
JEL Classification: J38, D22, C23
Suggested Citation: Suggested Citation