Revisiting the Minimum Wage-Employment Debate: Throwing Out the Baby with the Bathwater?

David Neumark, John Michael Ian Salas and William Wascher

No 18681, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We revisit the minimum wage-employment debate, which is as old as the Department of Labor. In particular, we assess new studies claiming that the standard panel data approach used in much of the "new minimum wage research" is flawed because it fails to account for spatial heterogeneity. These new studies use research designs intended to control for this heterogeneity and conclude that minimum wages in the United States have not reduced employment. We explore the ability of these research designs to isolate reliable identifying information and test the untested assumptions in this new research about the construction of better control groups. Our evidence points to serious problems with these research designs. Moreover, new evidence based on methods that let the data identify the appropriate control groups leads to stronger evidence of disemployment effects, with teen employment elasticities near −0.3. We conclude that the evidence still shows that minimum wages pose a tradeoff of higher wages for some against job losses for others, and that policymakers need to bear this tradeoff in mind when making decisions about increasing the minimum wage.

JEL-codes: J23 J38 (search for similar items in EconPapers)
Date: 2013-01
New Economics Papers: this item is included in nep-geo, nep-lab, nep-lma and nep-ltv
Note: LS PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (76)

Published as David Neumark & J. M. Ian Salas & William Wascher, 2014. "Revisiting the Minimum WageâEmployment Debate: Throwing Out the Baby with the Bathwater?," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 67(2.5), pages 608-648, May.

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