Abstract
Abstract Revisiting research from the 1990s from Castillo-Freeman and Krueger, I use the synthetic control method of Abadie et al. to estimate the impact of the most recent increase in the federal minimum wage on employment in Puerto Rico. I estimate that the employment/population ratio of various groups in Puerto Rico was significantly lower than that of a data-constructed synthetic Puerto Rico which did not raise its minimum wage. Placebo tests on other donor units, time periods, and population groups suggest that a significant portion of this gap is a result of the minimum wage. Groups with greater exposure to the minimum wage, such as teens and restaurant workers, experienced proportionally greater declines in employment. My results suggest an own-wage elasticity of employment in Puerto Rico of −0.68, higher than estimates from the mainland, which suggests that the employment response to minimum wages may be more dramatic at higher relative minimum wages.
Highlights
The employment effect, or lack thereof, of the minimum wage remains a contentious issue in empirical economics, but a significant amount of progress on the issue has been made since the dueling studies of Card and Krueger (1993) and Neumark and Wascher (1995)
The employment effects of such a high minimum may be better gauged by looking to the US territory of Puerto Rico, which has been bound by the Federal Minimum wage since 1983
This paper contributes to the extensive literature on the employment effects of minimum wages by focusing on the 2007 increase in Puerto Rico’s minimum wage, which led to a relative minimum wage for the island nation that was significantly higher than any found in the continental United States and affected the wages of a greater number of workers
Summary
The employment effect, or lack thereof, of the minimum wage remains a contentious issue in empirical economics, but a significant amount of progress on the issue has been made since the dueling studies of Card and Krueger (1993) and Neumark and Wascher (1995). A federal minimum wage of $15/h would be 95% of the median wage in Mississippi and 87% of the median wage in West Virginia if implemented immediately, for example Such an increase is far beyond those studied by the majority of the minimum wage literature. Average hourly earnings in Puerto Rico were equal to $12.21 in 2010, compared to $21.92 for the mainland United States, $17.74 for Mississippi, and $17.65 in West Virginia. This results in Puerto Rico having a relative minimum wage that is much higher than any other state.
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