Saturday, July 08, 2017

The adverse impact of minimum wage laws

Microeconomic theory, ignoring the unrealistic monopsony issue, suggests that an increase in the minimum wage hurts those at the low end of the totem pole.  Here is another study that presents data that is consistent with that view.

Here is the link.

The Abstract follows.
This paper estimates the long-run impact of youth minimum wages on youth employment by exploit-
ing a large discontinuity in Danish minimum wage rules at age 18 and using monthly payroll records for the Danish population. We show theoretically how the discontinuity in the minimum wage may be exploited to estimate the causal effect of a change in the minimum wage of youth on their employment. On average, the hourly wage rate jumps up by 40 percent when individuals turn eighteen years old. Employment (extensive margin) falls by 33 percent and total labor input (extensive and intensive margin) decreases by around 45 percent, leaving the aggregate wage payment nearly unchanged. Data on flows into and out of employment show that the drop in employment is driven almost entirely by job loss when individuals turn 18 years old. We estimate that the relevant elasticity for evaluating the effect on youth employment of changes in their minimum wage is about -0.8.

No comments: