The Effect of the Minimum Wage on Employment and Unemployment: A Survey

Abstract

In this paper, we survey theoretical models of the effect of the minimum wage and, in somewhat greater detail, evidence of its effect on employment and unemployment. Our discussion of the theory emphasizes recent work using two-sector and heterogeneous-worker models. We then summarize and evaluate the large literature on employment and unemployment effects of the minimum on teenagers. Finally, we survey the evidence of the effect of the minimum wage on adult employment, and on employment in low-wage industries and areas.

Synergies in Labour Market Institutions: the Nonlinear Effect of Minimum Wages on Youth Employment

“…Earlier papers tend to confirm the neoclassical prediction of negative effects. For instance, Brown et al (1982) find that a 10% increase in MWs decreases U.S. teenage employment by 1-3% in a time series study, which is confirmed in a later study by Neumark and Wascher (1992) for 16-24 year-olds for a U.S. panel dataset.…”

Do minimum wages affect firms’ labor and capital? Evidence from Vietnam

“…It implies that if the average labor size of firms is around 33, a one-percent increase in real minimum wages can reduce the average labor size by approximately 0.033 worker. This effect is small, compared with the effect found in empirical studies in the United States in which a one-percent increase in minimum wages lead to a 0.1 to 0.3 percent reduction in employment (Brown et al, 1982;Brown, 1999;Card and Krueger, 1995;Neumark and Wascher, 2007).…”

“…Negative effects of minimum wages on employment are found in a large number of empirical studies (see review by Brown et al, 1982;Brown, 1999;Card and Krueger, 1995;Neumark and Wascher, 2007;Lemos, 2008), while no effects or even positive effects of minimum wage on employment are found in other studies such as Katz and Krueger (1992), Krueger (1994, 2000), Montenegro andPages (2004), Rama (2001). Likewise, a positive effect of minimum wages on prices is found in several studies, e.g., Card and Krueger (1995), Aaronson (2001), Macdonald and Aaronson (2000), but other studies such as Frye and Gordon (1981), Katz and Krueger (1992), Card and Krueger (1995) find very small or insignificant effects of minimum wages on prices.…”

Employment effects of minimum wages

“…Studies focusing on the least skilled were highlighted, as the predicted job destruction effects of minimum wages were expected to be more evident in those studies. Reflecting the greater variety of methods and sources of variation in minimum wage effects used since 1982, this review documents a wider range of estimates of the employment effects of the minimum wage than does the review of the first wave of studies [1].…”

“…These studies estimated the effects of changes in the national minimum wage on the aggregate employment of young people, typically 16−19-yearolds or 16−24-year-olds, many of whom have low skills. The consensus of these firstgeneration studies was that the elasticities for teen employment clustered between −0.1 and −0.3 [1].…”