ERIC Number: ED383925
Record Type: RIE
Publication Date: 1993-Feb
Employment Effects of Minimum and Subminimum Wages. Recent Evidence.
Using a specially constructed panel data set on state minimum wage laws and labor market conditions, Neumark and Wascher (1992) presented evidence that countered the claim that minimum wages could be raised with no cost to employment. They concluded that estimates indicating that minimum wages reduced employment on the order of 1-2 percent for a 10 percent increase in minimum wages were correct. They showed that minimum wages had lagged effects; that is, they took more than a year to have their full effects on employment. When there were lagged effects, estimates based on the relationship between minimum wages and employment "within" a year understated the disemployment effect of minimum wages. When lagged effects were ignored, the estimation method Card (1992) used had a particularly strong tendency to produce incorrect estimates indicating that minimum wages did not reduce employment and perhaps even indicating they increased employment. Neumark and Wascher examined individual states that have sometimes implemented exemptions from state minimum wage levels for specific subgroups of the labor force. Using 13 or more years of panel data for all 50 states and the District of Columbia, they found evidence that state subminimum wage provisions are utilized by employers and that a training wage equal to 85 percent of the minimum wage substantially moderated the disemployment effects of minimum wages for teenagers. This reverses findings by Lawrence Katz and Alan Krueger, who relied on a single year's worth of data for one industry in one state. (Appendixes to the report include methodology and findings from the Neumark-Wascher estimation; evidence on student and youth subminimum wage provisions; and the state minimum wage panel data set. Contains 21 references.) (YLB)
Publication Type: Reports - Research
Education Level: N/A
Authoring Institution: Employment Policies Inst., Washington, DC.