The Minimum Wage: Consequences for Prices and Quantities in Low-wage Labor Markets

Abstract

Do moderate increases in the minimum wage reduce employment? If not, do they nevertheless raise wages? To examine these questions, we apply techniques of time-series analysis and systems estimation that are commonly used in macroeconomics and finance to five panels of data that contain between 11 and 34 low-wage industries. Our answers are No and Yes respectively. We find that increases in the federal minimum wage between 1947 and 1997 have raised average wages in many of these industries, especially the lowest wage ones. The effect on employment, however, is mixed and typically non-significant, even when average wages have risen.