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Does regional variation in wage levels identify the effects of a national minimum wage?

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  • Daniel Haanwinckel

Abstract

This paper investigates the validity of estimators that exploit regional differences in wage levels to identify the labor market effects of a national minimum wage. Specifically, it examines variations of the ``fraction affected'' and ``effective minimum wage'' designs. The study finds that these estimators are prone to biases from correlated measurement errors and functional form misspecification, even when identification assumptions from previous literature are met. Additionally, minor deviations from these assumptions can introduce significant biases. Through a series of simulation exercises and a detailed case study of Brazil's federal minimum wage increase starting in 1995, the paper documents the practical relevance of these biases and evaluates the effectiveness of potential solutions and diagnostic tools.

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  • Daniel Haanwinckel, 2023. "Does regional variation in wage levels identify the effects of a national minimum wage?," Papers 2307.01284, arXiv.org, revised Nov 2024.
    • Handle: RePEc:arx:papers:2307.01284
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    References listed on IDEAS

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