Using Local Labor Market Data to Re-Examine the Employment Effects of the Minimum Wage

Abstract

Using quarterly Census data for 1996–2000, the author evaluates how minimum wages affected teenage employment at the county level. An analysis that includes all counties yields small and statistically insignificant effects, consistent with previous research using state panels. However, in counties where the minimum wage was likely binding (above the market-clearing wage for teens), the negative impact on employment was considerably larger. The effect was strongest in small counties, was restricted to “transitory” jobs and new hires, and apparently was not experienced by young adults ages 19–22. The small employment effects found in much of the literature, the author argues, at least partly reflect the estimates' inclusion of local labor markets where the minimum wage is not binding. By averaging the effects across all areas, with no disaggregation based on where the minimum wage is binding and where it is not, these studies overlook important regional variation.