Revisiting the Minimum Wage—Employment Debate: Throwing Out the Baby with the Bathwater?

TLDR

The authors revisit the minimum wage–employment debate to evaluate recent studies that claim panel data estimates are flawed by ignoring spatial heterogeneity, and they examine whether new designs can reliably isolate identifying information and test assumptions about control groups. They employ research designs that control for spatial heterogeneity and assess the validity of these designs by testing assumptions about constructing better control groups. Their analysis uncovers flaws in the new designs, but when data‑driven control groups are used, they confirm disemployment effects with teen employment elasticities near –0.15, concluding that minimum wages entail higher wages for some at the cost of job losses for others.

Abstract

The authors revisit the long-running minimum wage–employment debate to assess new studies claiming that estimates produced by the panel data approach commonly used in recent minimum wage research are flawed by that approach's failure to account for spatial heterogeneity. The new studies use research designs intended to control for this heterogeneity and conclude that minimum wages in the United States have not reduced employment. The authors explore the ability of the new research designs to isolate reliable identifying information, and they test the designs' untested assumptions about the construction of better control groups. Their analysis reveals problems with the new research designs. Moreover, using methods that let the data identify the appropriate control groups, their results reaffirm the evidence of disemployment effects, with teen employment elasticities near −0.15. This evidence, they conclude, still shows that minimum wages pose a tradeoff of higher wages for some against job losses for others.