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The effect of minimum wages on low-wage jobs: evidence from the United States using a bunching estimator

Cengiz, Doruk and Dube, Arindrajit and Lindner, Attila and Zipperer, Ben (2018) The effect of minimum wages on low-wage jobs: evidence from the United States using a bunching estimator. CEP Discussion Papers, CEPDP1531. Centre for Economic Performance, London School of Economics and Political Science, London, UK.

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Abstract

We propose a novel method that infers the employment effect of a minimum wage increase by comparing the number of excess jobs paying at or slightly above the new minimum wage to the missing jobs paying below it. Using state-level variation in U.S. minimum wages, we implement our method by providing new estimates on the effect of the minimum wage on the frequency distribution of hourly wages. First, we present a case study of a large, indexed minimum wage increase using administrative data on hourly wages from Washington State. Then we implement an event study analysis pooling 138 minimum wage increases between 1979 and 2016. In both cases, we find that the overall number of low-wage jobs remained essentially unchanged. At the same time, the direct effect of the minimum wage on average earnings was amplified by modest wage spillovers at the bottom of the wage distribution. Our estimates by detailed demographic groups show that the lack of job loss is not explained by labor-labor substitution at the bottom of the wage distribution. We also find no evidence of disemployment when we consider higher levels of minimum wages. However, we do find some evidence of reduced employment in tradable sectors. In contrast to our bunching-based estimates, we show that conventional studies can produce misleading inference due to spurious changes in employment higher up in the wage distribution.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk/
Additional Information: © 2018 The Authors
Divisions: Centre for Economic Performance
Subjects: H Social Sciences > HB Economic Theory
JEL classification: J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc.
J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J38 - Public Policy
J - Labor and Demographic Economics > J8 - Labor Standards: National and International > J88 - Public Policy
Sets: Research centres and groups > Centre for Economic Performance (CEP)
Series: Working Papers > CEP Discussion Papers
Date Deposited: 26 Jun 2018 13:32
Last Modified: 26 Jun 2018 13:32
Funders: Economic and Social Research Council
URI: http://eprints.lse.ac.uk/id/eprint/88682

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