Ruhr Economic Papers

Ruhr Economic Papers #830

Labor Market Effects of Minimum Wage Shocks

by Martin Micheli

RWI, 12/2019, 20 S./p., 8 Euro, ISBN 978-3-86788-963-6 DOI: 10.4419/86788963

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Abstract

The theoretical literature argues that labor markets outcomes are affected by real minimum wages. Real minimum wages, however, co-move with the business cycle; their correlation with labor market outcomes should therefore not be interpreted causally. We employ structural vector autoregression to distinguish between endogenous variation in real minimum wages, e.g. due to changes in the stance of the business cycle, and exogenous shocks. Impulse responses show that in the US, real minimum wage shocks increased teen wages and lowered employment and working hours of teenagers.

JEL-Classification: J3, J48

Keywords: Minimum wage; panel VAR; teen employment; teen working hours; teen wages; US

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