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Employment Effects of the Federal Minimum Wage

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  • John F. Boschen
  • Herschel I. Grossman

Abstract

This paper describes an empirical study of the effects of federal minimum wage policy on aggregate employment, on the employment of various demographic groups, and on employment in low-wage industries. The analytical framework permits separate testing both for direct employment effects of the level and coverage of the minimum wage and for indirect employment effects resulting from a possible role for the minimum wage as a cause of monetary nonneutrality. Another innovation in this study is the inclusion of rational expectations of expected future relative minimum wages as determinants of the demands and supplies of labor services. The study finds that minimum-wage policy seems not to affect aggregate employment or average wages either directly or indirectly. Minimum-wage policy, however, has large and statistically significant effects on the industrial and demographic composition of employment, with employment decreasing in certain low-wage industries and for teenagers and for young men but increasing for young women and for adults. A major part of these effects are associated with anticipated future changes in the level of the minimum wage.

Suggested Citation

  • John F. Boschen & Herschel I. Grossman, 1981. "Employment Effects of the Federal Minimum Wage," NBER Working Papers 0812, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:0812
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    1. Grant, James H & Hamermesh, Daniel S, 1981. "Labor Market Competition among Youths, White Women and Others," The Review of Economics and Statistics, MIT Press, vol. 63(3), pages 354-360, August.
    2. Edward M. Gramlich, 1976. "Impact of Minimum Wages on Other Wages, Employment, and Family Incomes," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 7(2), pages 409-462.
    3. Hamermesh, Daniel S, 1982. "Minimum Wages and the Demand for Labor," Economic Inquiry, Western Economic Association International, vol. 20(3), pages 365-380, July.
    4. finis-welch, 1978. "Minimum Wages: Issues and Evidence," Books, American Enterprise Institute, number 921141, September.
    5. Ragan, James F, Jr, 1977. "Minimum Wages and the Youth Labor Market," The Review of Economics and Statistics, MIT Press, vol. 59(2), pages 129-136, May.
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