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Increase in Minimum Wage, Decreases Employment Among Low-Skill Workers

Basic price theory seems to imply that raising the minimum wage, will result in greater unemployment.  Almost all economists accepted this conclusion until several years ago, when some empirical results seemed to challenge it.  Now there is active debate. 

Here is the abstract of a relevant, just-published, article in the leading journal in the field of labor economics:


We infer the employment response to a minimum wage change by calibrating a model of employment for the restaurant industry. Whereas perfect competition implies that employment falls and prices rise after a minimum wage increase, the monopsony model potentially implies the opposite. We show that estimated price responses are consistent with the competitive model. We place fairly tight bounds on the employment response, with the most plausible parameter values suggesting that a 10% increase in the minimum wage lowers low-skill employment by 2%-4% and total restaurant employment by 1%-3%.


The article reference is:

Aaronson, Daniel, and Eric French. "Product Market Evidence on the Employment Effects of the Minimum Wage." Journal of Labor Economics 25, no. 1 (Jan. 2007): 167-200.


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