Does the Employment Effect of National Minimum Wage Vary by Non-employment Rate? A Regression Discontinuity Approach

Lei Xu () and Yu Zhu
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Lei Xu: Loughborough University

No 15345, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We examine the impact of increasing minimum wage on employment by exploiting variation in the age-dependent National Minimum Wage (NMW) in the UK. We extend the Regression Discontinuity model to evaluate the procyclicality of employment effect and show that previous estimates may be biased due to failure to account for the local non-employment rate. Contrary to the existing literature, we report a positive employment elasticity after accounting for the effect of local labour market conditions. The results suggest that the positive employment effect of increasing minimum wage is strongly procyclical, i.e. is more pronounced in areas with low non-employment rates. Under an assumption that employers have no direct impact around the cut-off point, the results suggest that a higher minimum wage increases labour supply of young workers.

Keywords: minimum wage; macroeconomic fluctuation; regression discontinuity; age dependent; procyclicality (search for similar items in EconPapers)
JEL-codes: J22 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2022-06
New Economics Papers: this item is included in nep-lma
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Published - published in: Manchester School, 2023, 91 (1), 18 - 36

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Related works:
Journal Article: Does the employment effect of national minimum wage vary by non‐employment rate? A regression discontinuity approach (2023)
Working Paper: Does the employment effect of National Minimum Wage vary by non-employment rate? A Regression Discontinuity approach (2022)
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