 Aggregation Bias in Elasticities of Substitution and the Minimum Wage ParadoxInternational Economic Review, 2000, vol. 41, issue 2, 359-98 Abstract: While the employment effects of minimum wages are usually reported to be small (suggesting low substitutability between skill types), direct estimates suggest a much larger degree of substitutability. This article argues that this paradox is largely due to a bias induced by the aggregation of skill types into broad categories. An assignment model is applied where skilled workers have a comparative advantage in complex jobs. The implied pattern of substitutability reveals the sources of the bias. Estimation results for the United States show elasticities of complementarity to be underestimated by up to a factor 2.5. The methods laid out likewise can be applied to other markets where different quality types are close substitutes, such as the housing market. Copyright 2000 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association. Date: 2000 There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ier:iecrev:v:41:y:2000:i:2:p:359-98 Ordering information: This journal article can be ordered from Access Statistics for this article International Economic Review is currently edited by Harold L. Cole More articles in International Economic Review from Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association 160 McNeil Building, 3718 Locust Walk, Philadelphia, PA 19104-6297. Contact information at EDIRC. |
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