Estimating the effect of minimum wages on employment from the distribution of wages: A critical view

Abstract

In two papers, Meyer and Wise (1983a,b) present an ingenious method for estimating the effect of minimum wage rates on wages and employment using data based only on the observed cross-sectional distribution of wages. They, and others who have used this method, have generally found that the minimum wage causes substantial losses in employment. In this paper we evaluate the robustness of this technique. We argue that the estimates, at least for the UK, are very sensitive to the functional form assumed for the distribution of wages and to the assumption made about how far up the wage distribution the minimum wage has spillover effects.

Low-Wage Labor Markets and the Power of Suggestion

“…When the re-distributive impacts of the minimum wage are addressed, they are examined from the standpoint of whether the minimum wage increases earnings of low-wage workers (Meyer & Wise, 1983), aids in combating poverty (Burkhauser et al, 1996), reduces wage inequality (Dickens et al, 2004;Teulings, 2003;DiNardo et al, 1996) or possibly affects the entire wage distribution (Neumark et al, 2004;Lee, 1999;Dickens et al, 1998).…”

How Robust are Simulated Employment Effects of a Legal Minimum Wage in Germany?: A Comparison of Different Data Sources and Assumptions

“…There are theoretical approaches modeling spill-over effects explicitly (see e.g. Dickens et al, 1998) as well as empirical papers providing evidence for wage effects on higher quantiles of the wage distribution (see Autor et al, 2009 for a recent example). Under these more general assumptions the magnitude of wage and ultimately employment effects might be higher than in the simulations we consider in this paper.…”

The impact of differential payroll tax subsidies on minimum wage employment

“…Some argue that minimum wage changes have no visible impact on employment (see the discussions surrounding the Card and Krueger', 1994 study; see also Krueger, 1998 andKrueger, 1995 for a recent critical analysis of the literature; see also Dickens, Machin, and Manning, 1998 for an analysis of the UK). Some others however, find that the falling real minimum wage over the eighties had impact both on employment of young as well as adult workers, and on the increase in wage inequality in the U.S. (see Brown, Gilroy, and Kohen, 1982 Fortin, andLemieux, 1996, andLee, 1999 for inequality).…”