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Minimum Wage Research Paper

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Minimum Wage Research Paper
NAME : PAUL JAGLAL

ID# : 810004645

COURSE : ECON 3029 –
LABOUR ECONOMICS

“USING REGIONAL VARIATION IN WAGES TO MEASURE THE EFFECTS OF THE FEDERAL MINIMUM WAGE.”

One of the major criticisms of the federal minimum wage is that it imposes a higher relative wage floor with lower wage averages. This paper examines the April 1990 rise in the federal minimum wage to evaluate the effects of minimum wages on the teenage labour market. These state specific wage floors created remarkable geographic dispersion in teenage wage rates, setting the stage for the empirical analysis. The fed increased minimum wage to $3.35 per hour in January 1981 and the decline in the real value of the federal minimum wage prompted state legislatures …show more content…
There is only a slight dip in the fraction earning less than $3.80 per hour in the first quarter of 1990. Most employers waited until the effective date to increase the wages of their teenage employees. Before looking to a regional analysis of the effects of the increased federal minimum wage, it may prove effective to aggregate the change in teenage employment between 1989 and 1990 as much of the existing literature used the correlation between the minimum wages and the aggregate teenage employment to infer the effect of the law. The youth labour market is highly cyclical and the onset of a recession would be expected to lower teenage employment by several percentage points. (This relationship was illustrated in figure …show more content…
A rise in the minimum wage increased average teenage wages by 2% in the medium-wage states and by 6% in the low-wage states. It is useful to compare these estimated effects to the wage gains implied by a naïve model in which the only effect of minimum wages is to raise the earnings of affected workers up to the new minimum. Such a model, tends to understate the wage gains if there are significant dis-employment effects of the rise in the minimum wage, or is the increase in the minimum wage ‘spills over’ to higher- wage workers. Ignoring the dis-employment or spill over effects, the predicted effect of the increased federal minimum on average wages in low wage states was 0.40 times the average increase for a wage earner who moves from the affected wage range to the new minimum
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