Product Market Evidence on the Employment Effects of the Minimum Wage

Daniel Aaronson and Eric French

Journal of Labor Economics, 2007, vol. 25, pages 167-200

Abstract: We infer the employment response to a minimum wage change by calibrating a model of employment for the restaurant industry. Whereas perfect competition implies that employment falls and prices rise after a minimum wage increase, the monopsony model potentially implies the opposite. We show that estimated price responses are consistent with the competitive model. We place fairly tight bounds on the employment response, with the most plausible parameter values suggesting that a 10% increase in the minimum wage lowers low-skill employment by 2%–4% and total restaurant employment by 1%–3%.

Date: 2007
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