Employment Effects Of Minimum Wage Research Articles

Employment effects of minimum wages in a dual economy: Evidence from Thailand

This study employs both theoretical insights and empirical techniques to investigate the impact of a minimum wage increase on employment when minimum wage coverage is incomplete. Previous empirical studies on this topic have found conflicting results: while some find the share of the covered sector decreases, some find it increases. In the theoretical part, we extended the classic two-sector model and found both scenarios can occur depending on the parameters of the economy. Empirically, using as a natural experiment a novel minimum wage policy in Thailand whereby 40 percent of workers were not covered by the legislation, we found that one percent increase in the minimum wage reduced low-skilled employment in the covered sector by 0.1–1.1 percent and increased employment in the uncovered sector. The official unemployment rate also decreased because the rise in the minimum wage lowered the probability of covered employment to such a large extent that workers instead turned to the uncovered sector.

Minimum Wages and Labour Supply in an Emerging Market: The Case of Mauritius

Abstract This paper investigates the effect of multiple minimum wages, known as remuneration orders, on employment and working hours in Mauritius. Using data between 2005 and 2014, the analysis finds no effect on overall employment and different effects in sign for men and women. The minimum wage has a positive long-term effect on women's employment (0.141) and a negative effect on male employment (−0.097). The estimated employment elasticity magnitudes for men and women are within the range of elasticities found in previous studies of employment effects of minimum wages in low- and middle-income countries. The aggregate employment effect of the minimum wage in Mauritius is not significant, due to the larger share of men who are employed. The extensive margin effect of minimum wages is also associated with a 2.2% increase in average working hours for men but a 1.3% decline in average working hours for women in the covered sector. In the uncovered sector, the significant positive effect along the intensive margin, estimated at 4.6%, is driven by changes in labour supply among men.

Does the employment effect of national minimum wage vary by non‐employment rate? A regression discontinuity approach

AbstractWe extend the Regression Discontinuity model to evaluate the procyclicality of employment effect of minimum wage and show that previous estimates may be biased due to failure to account for the local non‐employment rate. The results suggest that the positive employment effect of increasing minimum wage is strongly procyclical, that is, is more pronounced in areas with low non‐employment rates. Under an assumption that employers have no direct impact around the cut‐off point, the results suggest that a higher minimum wage increases labour supply of young workers.

Raising the Bar: Minimum Wages and Employers’ Hiring Standards

Many scholars have studied the employment effects of minimum wages, but little is known about effects on the composition of hires. I investigate whether Germany’s minimum wage introduction raised hiring standards, using worker fixed effects as a proxy for worker productivity. For the least productive workers hired, the minimum wage led to a 4 percentile point shift in the productivity distribution. This increase is missed using standard observable measures of worker productivity. The effects are larger with greater pre-reform screening intensity—indicating an employer response. This more selective hiring compensates about two-thirds of higher wage costs for the least productive hires. (JEL J23, J24, J31, J38, M51)

Myth or measurement: What does the new minimum wage research say about minimum wages and job loss in the United States?

AbstractThe disagreement among studies on the employment effects of minimum wages in the United States is well known. Less well known, and more puzzling, is the absence of agreement on what the research literature says—that is, how economists summarize the body of evidence on the employment effects of minimum wages. Summaries range from “it is now well established that higher minimum wages do not reduce employment,” to “the evidence is very mixed with effects centered on zero so there is no basis for a strong conclusion one way or the other,” to “most evidence points to adverse employment effects.” We explore the question of what conclusions can be drawn from the literature, focusing on the evidence using subnational minimum wage variation within the United States that has dominated the research landscape since the early 1990s. To accomplish this, we assembled the entire set of published studies in this literature and identified the core estimates that support the conclusions from each study, in most cases relying on responses from the researchers who wrote these papers. Our key conclusions are as follows: (i) there is a clear preponderance of negative estimates in the literature; (ii) this evidence is stronger for teens and young adults and the less educated; (iii) the evidence from studies of directly affected workers points even more strongly to negative employment effects; and (iv) the evidence from studies of low‐wage industries is less one‐sided.

Effects of the Minimum Wage on Small Firms in China: Spillover Effects from Large Firms

Abstract This study investigates how minimum wage affects small firms through spillover effects from large firms. Using firm-level panel data from Anhui Province in China, we find that after a minimum wage increase, small firms will reduce workers’ wages and create jobs due to the inflow of displaced workers from large firms. This spillover effect is larger for micro firms and private firms, where minimum wage compliance tends to be lower. We also find that high-tech small firms are more affected than low-tech ones because of their greater demand for skilled labor. Our findings not only highlight the unintended consequences of minimum wage on small firms in China, but also help to explain the ambiguous employment effects of minimum wage on the covered sector in developing countries.

The Quasi-experimental Design Approach to Causality and the Credibility Revolution in Empirical Economics: A Review of Main Contributions by 2021 Nobel Economics Laureates

How to evaluate the causal relationship between economic variables credibly using observational data is a common problem faced by empirical economists. The Royal Swedish Academy of Sciences awarded the 2021 Nobel Prize in economics to David Card for his empirical contributions to labor economics, and Joshua Angrist and Guido Imbens for their methodological contributions to the analysis of causal relationships. This paper reviews how they devise quasi-experimental designs for causality evaluation with the help of natural experiments and the credibility revolution in empirical labor economics with emphasis on the analysis of century-old questions: the employment effects of minimum wage, the labor market impact of immigration and educational investments. The main conclusions are as follows: Firstly, various seemingly different quasi-experimental designs of causality evaluation have the same basic logic. They all use the scene of natural experiments to imitate the way of randomized controlled trials (RCTs), and look for research objects with the same or similar characteristics as the control group that constitutes the counterfactual result of causality evaluation. Moreover, a survey of the classical literature of empirical labor economics shows that the credibility of causality evaluation does not depend on the data and econometric methods themselves, but on the in-depth understanding and thorough analysis of the operation mechanism of social and economic system. Therefore, the in-depth investigation and discussion of natural experiments is essential. Finally, China’s economic reform provides abundant natural experimental resources for quasi-experimental designs. Researchers, who want to tell the Chinese stories with scientific and standardized economic research methods, should pay attention to the in-depth investigation and analysis of the systems behind natural experiments, standardize the quasi-experimental design process to avoid p-hacking, and strengthen the theoretical research of influence mechanism. Policy-makers should pay attention to the limitations and external validity of the research conclusions when learning from quasi-experimental designs to evaluate the effective of policy.

Myth or Measurement: What Does the New Minimum Wage Research Say About Minimum Wages and Job Loss in the United States?

The disagreement among studies of the employment effects of minimum wages in the United States is well known. What is less well known, and more puzzling, is the absence of agreement on what the research literature says – that is, how economists even summarize the body of evidence on the employment effects of minimum wages. Summaries range from “it is now well-established that higher minimum wages do not reduce employment,” to “the evidence is very mixed with effects centered on zero so there is no basis for a strong conclusion one way or the other,” to “most evidence points to adverse employment effects.” We explore the question of what conclusions can be drawn from the literature, focusing on the evidence using subnational minimum wage variation within the United States that has dominated the research landscape since the early 1990s. To accomplish this, we assembled the entire set of published studies in this literature and identified the core estimates that support the conclusions from each study, in most cases relying on responses from the researchers who wrote these papers.Our key conclusions are: (i) there is a clear preponderance of negative estimates in the literature; (ii) this evidence is stronger for teens and young adults as well as the less-educated; (iii) the evidence from studies of directly-affected workers points even more strongly to negative employment effects; and (iv) the evidence from studies of low-wage industries is less one-sided. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Market Wages Below Productivity and the Employment Effects of Minimum Wages

In contrast to common theoretical expectations, the negative employment effects of minimum wages have mostly been found to be small or insignificant by empirical studies. In order to explain these findings, we use a labor market model that is based on the insight that market wages may be systematically below workers’ average productivity even in a competitive market. Small negative employment effects of minimum wages are derived under plausible conditions. These small effects might be offset by accompanying factors such as increasing product demand.

Do minimum wages reduce employment in developing countries? A survey and exploration of conflicting evidence

Evidence from studies of the employment effects of minimum wages in developing countries is mixed. One interpretation is that there is simply no clear evidence of disemployment effects in developing countries. Instead, however, we find evidence that the heterogeneity is systematic, with estimated effects more consistently negative in studies with relatively more features for which institutional factors and the competitive model more strongly predict negative effects. These features include whether studies: (i) focus on vulnerable workers; (ii) use data for the formal sector; (iii) cover countries where minimum wage laws are strongly enforced; and (iv) estimate effects for countries and periods with binding minimum wages.

Minimum Wage and Youth Employment in Regions of the Visegrád Countries

ABSTRACT This paper estimates the youth employment effects of minimum wages in the Visegrád countries: Czechia, Hungary, Poland, and Slovakia. The analyses are based on a regional panel dataset for the period 2003–16. Our results indicate that changes in minimum wages measured as a ratio of regional average wages have not negatively affected youth employment rates in the Visegrád countries at the national level. Detailed analyses indicate that changes in the ratio of minimum to average wages may have dampened regional youth employment in Hungary in 2008–11, in Czechia in 2003–7, and in several regions in Poland and Slovakia throughout the full sample period.

The Econometrics and Economics of the Employment Effects of Minimum Wages: Getting from Known Unknowns to Known Knowns

AbstractI discuss the econometrics and the economics of past research on the effects of minimum wages on employment in the United States. My intent is to try to identify key questions raised in the recent literature, and some from the earlier literature, which I think hold the most promise for understanding the conflicting evidence and arriving at a more definitive answer about the employment effects of minimum wages. My secondary goal is to discuss how we can narrow the range of uncertainty about the likely effects of the large minimum wage increases becoming more prevalent in the United States. I discuss some insights from both theory and past evidence that may be informative about the effects of high minimum wages, and try to emphasize what research can be done now and in the near future to provide useful evidence to policymakers on the results of the coming high minimum wage experiment, whether in the United States or in other countries.

The Effects of Minimum Wages on Low‐Skilled Immigrants’ Wages, Employment, and Poverty

Raising the minimum wage has been advanced as complementary policy to comprehensive immigration reform to improve low‐skilled immigrants’ economic well‐being. While adverse labor demand effects could undermine this goal, existing studies do not detect evidence of negative employment effects. We re‐investigate this question using data from the 1994 to 2016 Current Population Survey and conclude that minimum wage increases reduced employment of less‐educated Hispanic immigrants, with estimated elasticities of around –0.1. However, we also find that the wage and employment effects of minimum wages on low‐skilled immigrants diminished over the last decade. This finding is consistent with more restrictive state immigration policies and the Great Recession inducing outmigration of low‐skilled immigrants, as well as immigrants moving into the informal sector. Finally, our results show that raising the minimum wage is an ineffective policy tool for reducing poverty among immigrants.

Revisiting the Employment Effects of Minimum Wages in Europe

AbstractThe aim of this study is to estimate the relationship between the minimum wage and the employment rate of young individuals, taking into account potential non-linearity. In a cross-country setup of European countries, we find a significant nonlinear relationship between the minimum wages and employment rate of young individuals. Theoretically, while low minimum wages can indeed be positively associated with employment, after a certain level of the minimum wage, the relationship turns negative. This implies that there is an optimal level of minimum wages that maximizes the employment rate of young individuals. We additionally show that the negative relationship between minimum wages and employment of young workers is stronger if labor markets are otherwise strictly regulated and when workers are relatively unproductive. Using these results, we are able to calculate country-specific turning points and show that some European countries in our sample might in fact contribute to high unemployment rates among young individuals by setting minimum wages too high. However, in other European countries, especially the Eastern European countries, an increase in minimum wages (up to a certain level) might even lead to higher employment rates of young individuals.

The Econometrics and Economics of the Employment Effects of Minimum Wages: Getting from Known Unknowns to Known Knowns

I discuss the econometrics and the economics of past research on the effects of minimum wages on employment in the United States. My intent is to try to identify key questions raised in the recent literature, and some from the earlier literature, which I think hold the most promise for understanding the conflicting evidence and arriving at a more definitive answer about the employment effects of minimum wages. My secondary goal is to discuss how we can narrow the range of uncertainty about the likely effects of the large minimum wage increases becoming more prevalent in the United States. I discuss some insights from both theory and past evidence that may be informative about the effects of high minimum wages, and try to emphasize what research can be done now and in the near future to provide useful evidence to policymakers on the results of the coming high minimum wage experiment, whether in the United States or in other countries.

The Econometrics and Economics of the Employment Effects of Minimum Wages: Getting from Known Unknowns to Known Knowns

I discuss the econometrics and the economics of past research on the effects of minimum wages on employment in the United States. My intent is to try to identify key questions raised in the recent literature, and some from the earlier literature, which I think hold the most promise for understanding the conflicting evidence and arriving at a more definitive answer about the employment effects of minimum wages. My secondary goal is to discuss how we can narrow the range of uncertainty about the likely effects of the large minimum wage increases becoming more prevalent in the United States. I discuss some insights from both theory and past evidence that may be informative about the effects of high minimum wages, and try to emphasize what research can be done now and in the near future to provide useful evidence to policymakers on the results of the coming high minimum wage experiment, whether in the United States or in other countries.

Problems and Improvements in Research on the Employment Effect of Minimum Wage

Problems and Improvements in Research on the Employment Effect of Minimum Wage

Employment effects of minimum wages

Employment effects of minimum wages

Do minimum wages affect employment? Evidence from the manufacturing sector in Indonesia

Using survey data from the Indonesian manufacturing industry, this paper investigates the impact of minimum wage on employment and wages offered by Indonesian manufacturing firms from 1993 to 2006. It shows that the estimated effects of minimum wage on employment are positive within a province (i.e., with province fixed effects), but negative within a firm (i.e., with firm fixed effects), indicating the importance of using firm panel data to reduce the endogeneity bias in estimates. It finds significant heterogeneous effects of minimum-wage changes on employment. The employment effects of minimum wages are significant and negative among small firms and less educated workers, but not among large firms and workers with high school education and above. The negative employment impact is more severe for non-production workers than for production workers. The analysis also shows that the minimum wage disproportionally affects women: most of the non-production job losses are experienced by female workers. Lastly, the paper finds that the minimum wage is more correlated with the average wage of small firms than that of large firms, suggesting that minimum wages are more binding in small firms.

Employment effects of union-bargained minimum wages

Purpose – The purpose of this paper is to examine the effects of collectively agreed increases in minimum wages for manual workers on employment transitions and hours. Design/methodology/approach – The econometric approach relies on the identification of workers affected by minimum wage changes, depending on their position in the wage distribution and contrasts outcomes for these workers to those for unaffected workers, with slightly higher wages. Findings – The analysis suggests that separations increase as minimum wages increase and that substitution between worker groups in response to changes in minimum wages is important in retail. In general, though, hours do not change much as minimum wages increase. Research limitations/implications – Analyses that deal with employment consequences of increasing minimum wages but disregard hours may exaggerate the overall decline in employment to the extent that job losses are concentrated among low-paid, part-time workers. Practical implications – With union-bargained minimum wages, unions and employers need to carefully consider the effects of increasing rates on employment. Social implications – The findings that there is a trade-off between higher wages among the low-paid and employment loss and that employment to some extent is reshuffled between individuals should be important from a welfare perspective. Originality/value – The literature on employment effects of minimum wages is large, but very few studies are concerned with union-bargained minimum wages. The assumptions of the econometric model are tested in a novel way by imposing fictitious minimum wages on lower-level non-manuals in the same industry, with turnover characteristics similar to those of manuals but covered by a different collective agreement with non-binding actual minimum wages.