Legal Minimum Wages and Employment Duration

Abstract

We estimate the effect of minimum wages on employment duration using event history data from the 1988‐1994 rounds of the National Longitudinal Survey of Youth. Existing literature takes two alternative tracks: Some studies predict reduced turnover due to rents created by minimum wages, others focus on the expected increase in turnover due to reduced job amenities and imperfect information. We find that for men, the net effect of a minimum wage depends on its magnitude relative to the typical wage in the local labor market. We find some evidence that where the minimum wage is low, separation rates for men hired at the minimum wage are reduced. We also find that as the relative value of the minimum wage rises, separation hazards increase. We interpret these findings as evidence that rents may accrue to minimum wage workers, but that the job matching process is undermined when the minimum wage binds.