Minimum wage research – the state of play

By Eric Crampton 25/05/2015 1


Adam Ozimek summarises:

Criticisms of the state data approach motivated detailed examinations of how robust the models were to different specifications of pre-existing state and regional trends. Concerns about the sensitivity of the models led tobreakthrough research that focused on employment growth rates rather than levels. This research left the state data results more robust, and also helped explain why the older models sometimes found no effects. Concerns that states raise minimum wages when labor markets are booming have led to research using instrumental variables and federal minimum wage hikes in a state model, the results of which suggest significant job losses.
On the other side, criticisms of the original cross-border pair study led to pioneering research that looked at many cross-border pairs at the same time instead of focusing on one case study. Criticisms about whether the model could actually detect disemployment effects led to research showing that raising the minimum wage lowers job turnover.Other research using cross-border methodology found that while employment effects were small, raising the minimum wage put some firms out of business and led others to open, which implies that long-run job losses may be larger than those in the short run, as adjustments take a long time.
And the research has progressed. One recent paper used data that followed the same individuals over time. It found significant disemployment effects, and that the lost job experience hurt workers even after they eventually found new jobs. Importantly, this work showed that focusing on teenagers or fast food employment, common approaches in the earlier literature, can lead to underestimating the job losses.
A brand new paper suggests low-skilled workers move out of states that raise minimum wages. This new research raises the possibility that mobility and even housing markets may play a role in the effects of the minimum wage.
The historically unprecedented size of recent minimum wage increases means the risk of job loss is higher.

It’ll be interesting to see what happens with the California minimum wage hikes.


One Response to “Minimum wage research – the state of play”

  • California has such a sizable grey economy in employment, I’d venture to suggest any result would be indistinguishable from the background noise.