Introduction Manajemen | Fakultas Ekonomi Universitas Maritim Raja Ali Haji 425.full

Minimum Wage Effects throughout the Wage Distribution David Neumark Mark Schweitzer William Wascher a b s t r a c t This paper provides evidence on a wide set of margins along which labor markets can adjust in response to increases in the minimum wage, includ- ing wages, hours, employment, and ultimately labor income. Not surpris- ingly, the evidence indicates that low-wage workers are most strongly af- fected, while higher-wage workers are little affected. Workers who initially earn near the minimum wage experience wage gains. Neverthe- less, their hours and employment decline, and the combined effect of these changes on earned income suggests adverse consequences, on net, for low-wage workers.

I. Introduction

Labor markets can adjust along a variety of margins in response to increases in the minimum wage. For example, employers may alter the number of workers employed at an establishment, or they may adjust the average number of hours worked by each employee. In addition, Žrms may alter the mix of workers David Neumark is a senior fellow at the Public Policy Institute of California, a professor of economics at Michigan State University, and a research associate of the NBER. Mark Schweitzer is an economist at the Federal Reserve Bank of Cleveland. William Wascher is assistant director in the Division of Re- search and Statistics, Board of Governors of the Federal Reserve System. The authors are grateful to Scott Adams for outstanding research assistance, and to seminar participants at Michigan State, the University of Kentucky, UC-Berkeley, the Federal Reserve Bank of Cleveland, and Florida State Uni- versity for helpful comments. The views expressed do not necessarily reect the views of the Public Pol- icy Institute of California, the Federal Reserve Board, the Federal Reserve Bank of Cleveland, or their staffs. The data used in this article can be obtained beginning October 2004 through September 2007 from Mark Schweitzer, Federal Reserve Bank of Cleveland, P.O. Box 6387, Cleveland, OH 44101. [Submitted October 2001; accepted December 2002] ISSN 022-166X; E-ISSN 1548-8004 ã 2004 by the Board of Regents of the University of Wisconsin System TH E J O U R N A L O F H U M A N R E S O U R C E S • X X X I X • 2 employed following an increase in the minimum wage, essentially attempting to realign the marginal product of their workers with the wages they are paid. As a result of these adjustments, the effects of minimum wages may extend beyond work- ers whose wages are directly impacted by the higher oor. Our evidence indicates that minimum wage increases adversely affect workers initially earning near the minimum wage, but have little impact on higher-wage workers. In particular, al- though wages of low-wage workers rise, their hours and employment fall. The com- bined effect of these changes is a decline in earned income. Past minimum wage research focuses mainly on employment effects, and fails to distinguish minimum wage effects at different parts of the wage distribution. Conse- quently, this past research provides insufŽcient information with which to evaluate the policy implications of raising the minimum wage, in particular whether such increases help low-wage workers. In contrast, this paper generates a richer descrip- tion of the effects of the minimum wage on labor markets, providing evidence on a wide set of the margins along which labor market adjustments to minimum wages may occur, and how the adjustments vary at different points of the wage distribution; we provide a particularly sharp focus on minimum wage effects at the lower end of the wage distribution.

II. Existing Research