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Its Bark is Worse Than its Bite: The Wage and Employment Effects of the Minimum Wage in the US

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  • Dale Belman
  • Paul Wolfson

Abstract

This study examines the effect of changes in the US minimum wage on wages and employment in 32 industries selected for their presumed sensitivity to the minimum wage. Applying time series techniques commonly used in macroeconomics and finance to changes in the minimum wage occurring from 1967 and 1991, we initially test for a wage response; only where one is found do we test for an employment response. Twenty‐five per cent of the industry/minimum‐wage‐increase pairs show evidence of an appropriate wage response. Eight of these 54 show a statistically significant negative employment response, while six show significant, positive employment responses. Positive effects may be due to either a high variance distribution centred on zero or markets with ‘lemons’ problems concerning worker quality. Limiting analysis to industries in which the minimum wage binds provides no evidence of a consistent negative relationship between the historical minimum wage and employment.

Suggested Citation

  • Dale Belman & Paul Wolfson, 1999. "Its Bark is Worse Than its Bite: The Wage and Employment Effects of the Minimum Wage in the US," Australian Economic Papers, Wiley Blackwell, vol. 38(2), pages 143-163, June.
    • Handle: RePEc:bla:ausecp:v:38:y:1999:i:2:p:143-163
    DOI: 10.1111/1467-8454.00048
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