The authors’ affiliations are, respectively, Institute for Research on Labor and Employment, University of California at Berkeley. E-mail: firstname.lastname@example.org; Department of Economics, University of Massachusetts. E-mail: email@example.com; Department of Economics, Institute for Research on Labor and Employment, University of California at Berkeley. E-mail: firstname.lastname@example.org. We thank Lisa Bell, Maria Carolina Tomás, and Jay Liao for excellent research assistance; Eric Freeman for helpful suggestions; and the Ford Foundation for generous support.
Do Minimum Wages Really Reduce Teen Employment? Accounting for Heterogeneity and Selectivity in State Panel Data
Article first published online: 24 MAR 2011
© 2011 The Regents of the University of California
Industrial Relations: A Journal of Economy and Society
Volume 50, Issue 2, pages 205–240, April 2011
How to Cite
ALLEGRETTO, S. A., DUBE, A. and REICH, M. (2011), Do Minimum Wages Really Reduce Teen Employment? Accounting for Heterogeneity and Selectivity in State Panel Data. Industrial Relations: A Journal of Economy and Society, 50: 205–240. doi: 10.1111/j.1468-232X.2011.00634.x
- Issue published online: 24 MAR 2011
- Article first published online: 24 MAR 2011
Traditional estimates that often find minimum wage disemployment effects include controls for state unemployment rates and state- and year-fixed effects. Using CPS data on teens for the period 1990–2009, we show that such estimates fail to account for heterogeneous employment patterns that are correlated with selectivity among states with minimum wages. As a result, the estimates are often biased and not robust to the source of identifying variation. Including controls for long-term growth differences among states and for heterogeneous economic shocks renders the employment and hours elasticities indistinguishable from zero and rules out any but very small disemployment effects. Dynamic evidence further shows the nature of bias in traditional estimates, and it also rules out all but very small negative long-run effects. In addition, we do not find evidence that employment effects vary in different parts of the business cycle. We also consider predictable versus unpredictable changes in the minimum wage by looking at the effects of state indexation of the minimum wage.