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Is politics the missing piece of the minimum wage puzzle?

Jesse Wursten

No 637468, Working Papers of Department of Management, Strategy and Innovation, Leuven from KU Leuven, Faculty of Economics and Business (FEB), Department of Management, Strategy and Innovation, Leuven

Abstract: The effect of minimum wages on employment in the US is highly disputed. We show that the differences in the literature can be explained by heterogeneous shifts in political ideology across states. We add a control for political ideology to US county-level panel studies based on 1990-2013 employment and earnings data from the Quarterly Census of Employment and Wages (QCEW). The results suggest minimum wages increase earnings in affected sectors without reducing employment. Unlike existing estimates, these new results remain consistent across specifications, even when we instrument the political ideology variable using evolving cultural values or campaign contributions. The methodology used can be extended to analyses of other state level policies.

Keywords: minimum wage; labour policy; political ideology; employment; labour markets (search for similar items in EconPapers)
Pages: 37
Date: 2019-05-14
Note: paper number MSI_1905
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Published in FEB Research Report MSI_1905

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