The Highs and Lows of the Minimum Wage Effect: A Time‐Series Cross‐Section Study of the Canadian Law

TLDR

The study investigates the impact of Canadian minimum wage laws from 1975 to 1993. A 10% rise in the minimum wage reduces teenage employment by about 2.5% on low‑frequency trends, while high‑frequency effects are negligible and positive, explaining the mixed elasticities reported in recent studies.

Abstract

We examine the effects of minimum wage legislation in Canada over the period 1975–93. For teenagers we find that a 10% increase in the minimum wage is associated with roughly a 2.5% decrease in employment. We also find that this result is driven by low frequency variation in the data. At high frequencies the elasticity is positive and insignificant. The difference in the elasticity across the bandwidth has implications for the interpretation of employment dynamics as a result of minimum wage policy and experimental design in minimum wage studies. It also provides a simple reconciliation of the "new minimum wage research," which reports very small negative, or positive, elasticities.