Effects of Minimum Wages on Youth Employment: the Importance of Accounting for Spatial Correlation
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The relationship between minimum wage increases and youth employment is investigated using county-level data and spatial econometric techniques. Results that account for spatial correlation indicate that a 10% increase in the effective minimum wage is associated with a 3.2% decrease in youth employment, a result that is 28% higher than the corresponding estimate that does not control for spatial correlation. Thus, estimates that do not take into account spatial correlation may significantly underestimate the negative effect of the minimum wage on teenage employment. Improperly controlling for factors that vary systematically over space can lead to incorrect inferences and misinform policy.
KeywordsSpatial econometrics Spatial autoregressive model Minimum wage Youth employment
The authors would like to thank Diana Castillo-Trejo and Adam Lucchesi for their excellent research assistance.
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