underlying wage, hours, employment, and income changes of the nonaffected popu- lation, and using state variation in minimum wages to obtain treatment and control
groups. More generally, we provide a fuller characterization of minimum wage ef- fects throughout the wage distribution, and update and strengthen the analysis by
taking advantage of the state-level variation in minimum wages that has been fruit- fully exploited in the new minimum wage research.
III. Data
Our basic approach is to estimate models for changes in wages, hours, employment, and income, using data on individuals in matched monthly CPS
outgoing rotation group les for the period 1979– 97. While household identiers are available for doing the matching, individual identiers are not. This raises two
issues. First, to ensure that we match individuals correctly, we lter the data through a procedure that uses sex and age as primary characteristics for establishing a match.
A match occurs when a household identier-primary characteristics cell includes at least one pair of rst-year and second-year records. For instance, a 31-year-old fe-
male in the rst year and a 32-year-old female in the same household in the second year will be placed in the same cell. In the event of multiple matches we use a set
of tiebreakers, including factors such as education. This tie-breaking phase checks for the correct matches in the cell at the most detailed partition of the specied
variables rst. If no match is found, then variables are systematically dropped to arrive at a match. Additional steps are conducted to match others that may have
been missed in the rst step. For example, since the CPS is not necessarily conducted on the same calendar day in subsequent years, a 31-year-old female and a 33-year-
old female may be the same person, but they would have been excluded in our rst step. There are two sets of months that cannot be matched to observations 12 months
ahead because of changes in the sample in response to decennial Censuses of Popula- tion: July 1984– September 1985 and June 1994– August 1995.
Second, about 20 percent of the individuals in the outgoing rotation groups who can potentially be matched across years are not successfully matched, most likely
because of a change in residence. When we weight the observations, we adjust the sampling weight to account for the possibility that certain individuals have a lower
probability of being in the survey in consecutive years and thus are less likely to be included in our matched sample. This adjustment is based on logit model estimates
of the probability of a match as a function of demographic characteristics, with the adjusted weight an estimate of the inverse of the probability of being in our matched
sample of families. Of course this procedure does not correct for nonrandom match- ing that, conditional on these observables, is correlated with changes in outcomes
and therefore possibly also with minimum wage changes. We conjecture that, if anything, families most adversely affected by minimum wage increases tend to move
away from areas where minimum wages have increased and toward areas where they have not. If so, the bias from nonrandom matching will tend to understate any
adverse consequences of minimum wage increases.
The outcomes we study are wages, hours, employment, and labor income. We attempt to construct straight-time wages excluding tips, commissions, and overtime
by using a reported hourly wage—as opposed to usual weekly earningsusual weekly hours— whenever the former is reported. The weekly measure explicitly includes
tips, commissions, and overtime, while the hourly wage measure is less likely to include these. Beginning with the redesigned CPS in 1994, the hourly wage measure
was changed so as to explicitly exclude tips, commissions, and overtime, but we assume that the year effects will pick up the inuence of this change on average
wage changes. For hours, we use usual weekly hours which is coded as missing beginning in 1994 if the respondent indicates variable hours, and for labor income
we use the product of the wage and hours. The employment variable is an indicator equal to one for workers employed during the survey week.
IV. Empirical Framework