MINIMUM WAGES AND THE DEMAND FOR LABOR

Abstract

I formulate measures of the effective minimum wage, based on broad definitions of the labor costs that face employers, and use these measures in reestimating some simple equations relating the relative employment of youths and adults to the U.S. minimum wage using aggregate data for 1954-78.I then ground the model more closely in the theory of factor demand, first by adding the relative wages of youths and adults to the equation describing their relative employment, and then by specifying a complete system of demand equations for these two types of labor. Teen employment responds quite robustly to changes in the effective minimum in these specifications, with an elasticity of -0.1. A translog cost function defined over young workers, adults, and capital shows that the effective minimum wage reduces employers' ability to substitute other factors for young workers. Using both sets of results, I find that a subminimum wage for youths would have increased their employment with at most a small loss of jobs among adults.