Minimum wages have been studied so extensively that it is rare to find a fresh angle that piques labor economists’ interest. Despite a mountain of literature, advances in empirical methods, and the availability of new data, definitive studies are scarcer than policymakers would hope to find. The empirical challenges researchers of the minimum wage face boil down to specifying an appropriate counterfactual control group that could be used to understand what would have happened to unemployment and labor force participation in the absence of a minimum wage change.
The difficulty of addressing this challenge is evident in the variety of empirical approaches seen in the literature. In my new IZA Discussion Paper, I address this issue by looking at thousands of individuals immediately before and after a minimum wage increase. Using short 4-month individual panels that straddle state minimum wage changes in the U.S., this paper estimates the impacts of minimum wage changes on individual unemployment, part-time employment status, and labor force participation.
This paper’s primary results can be summed up in three conclusions. First, there is almost no evidence of a rise in unemployment immediately following a minimum wage increase. Second, it does not appear that employers are substituting full-time workers for part-time workers. Third, there is robust evidence that immediately following a minimum wage increase, there are fewer individuals in the labor force. For individuals ages 20 to 24, a 10% increase in the minimum wage is associated with .14% decrease in labor force participation. I also find decreases in labor force participation for foreign-born individuals of between .10 and .16% depending on whether they have less than a high school degree or have exactly a high school degree.
Chosen excerpts by Job Market Monitor. Read the whole story at How minimum wages affect employment and labor market participation