Skip to main content

Effects of Minimum Wages on Youth Employment: the Importance of Accounting for Spatial Correlation

Journal of Labor Research volume 29, pages 303–317 (2008)Cite this article

Abstract

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.

This is a preview of subscription content, access via your institution.

Access options

Buy single article

Instant access to the full article PDF.

USD 39.95

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Notes

  1. A recent review of the literature by Neumark and Wascher (2006) shows that the weight of the evidence supports a negative effect of minimum wages on employment.

  2. The analysis is a cross-sectional rather than a panel one due to limitations in the availability of data at the county level as well as changing county definitions over time.

  3. http://factfinder.census.gov/home/saff/main.html? _lang=en.

  4. Washington, D.C. and cities in Virginia, which technically do not reside in counties, were also excluded.

  5. http://www.dol.gov/esa/programs/whd/state/MWHistoryTable.pdf.

  6. The county-level adult male unemployment rate and the percent rural are not logged because a small number of zero values were reported for each.

  7. http://www.bls.gov/cew/home.htm.

  8. For a very small number of counties that were missing a value for the average county wage, the missing value was replaced with the average over all counties in the state and a missing value dummy variable was created and included in all specifications.

  9. Anselin (1988) provides an example of measurement error.

  10. Given maximum likelihood estimation’s dependence on the assumption of normality, we also estimated our models using the Generalized Method of Moments (GMM) technique and found that our results were not sensitive to the method used.

  11. Please see Anselin and Bera (1998).

  12. Anselin et al. (1996) provide Monte Carlo evidence that the Lagrange Multiplier tests utilized in this study may be superior to Wald and Likelihood Ratio tests for spatial dependence.

  13. Kim et al. (2003) derive the procedure for this marginal effect calculation. The (1/(1 − ρ)) term is referred to as a spatial multiplier and is the effect if a unit change were induced at every location.

References

  • Anselin L (1988) Spatial econometrics: methods and models. Kluwer Academic Publishers, Dordrecht

    Google Scholar 

  • Anselin L (2001) Spatial econometrics. In: Baltagi B (ed) A companion to theoretical econometrics. Blackwell, Oxford

    Google Scholar 

  • Anselin L, Bera A (1998) Spatial dependence in linear regression models with an introduction to spatial econometrics. In: Ullah A, Giles DEA (eds) Handbook of applied economic statistics. Marcel Dekker, New York

    Google Scholar 

  • Anselin L, Bera A, Florax R et al (1996) Simple diagnostic tests for spatial dependence. Reg Sci Urban Econ 26(1):77–104

    Article  Google Scholar 

  • Card D (1992a) Using regional variation in wages to measure the effects of the federal minimum wage. Ind Labor Relat Rev 46(1):22–37

    Article  Google Scholar 

  • Card D (1992b) Do minimum wages reduce employment? a case study of California, 1987–89. Ind Labor Relat Rev 46(1):38–54

    Article  Google Scholar 

  • Card D, Kreuger A (1994) Minimum wages and employment: a case study of the fast-food industry in New Jersey and Pennsylvania. Am Econ Rev 84(4):772–793

    Google Scholar 

  • Card D, Krueger A (2000) Minimum wages and employment: a case study of the fast-food industry in New Jersey and Pennsylvania: reply. Am Econ Rev 90(5):1397–1420

    Article  Google Scholar 

  • Dubin R (1998) Spatial autocorrelation: a primer. J Hous Econ 7(4):304–327

    Article  Google Scholar 

  • Florax R, Folmer H, Rey S (2003) Specification searches in spatial econometrics: the relevance of Hendry’s methodology. Reg Sci Urban Econ 33(5):557–579

    Article  Google Scholar 

  • Kalenkoski C, Lacombe D (2006) Right-to-work laws and manufacturing employment: the importance of spatial dependence. South Econ J 73(2):402–418

    Article  Google Scholar 

  • Kelejian H, Prucha I (1998) A generalized spatial two-stage least squares procedure for estimating a spatial autoregressive model with autoregressive disturbances. J Real Estate Finance Econ 17(1):99–121

    Article  Google Scholar 

  • Kim C, Phipps T, Anselin L (2003) Measuring the benefits of air quality improvement: a spatial hedonic approach. J Environ Econ Manag 45(1):24–39

    Article  Google Scholar 

  • Lee L (2004) Asymptotic distributions of quasi-maximum likelihood estimators for spatial autoregressive models. Economics 72(6):1899–1925

    Google Scholar 

  • Lianos T (1972) Impact of minimum wages upon the level and composition of agricultural employment. Am J Agric Econ 54(3):477–484

    Article  Google Scholar 

  • Michl T (2000) Can rescheduling explain the New Jersey minimum wage studies? East Econ J 26(3):265–276

    Google Scholar 

  • Neumark D, Wascher W (1992) Employment effects of minimum and subminimum wages: panel data on state minimum wage laws. Ind Labor Relat Rev 46(1):55–81

    Article  Google Scholar 

  • Neumark D, Wascher W (1995) Minimum wage effects on employment and school enrollment. J Bus Econ Stat 13(2):199–206

    Article  Google Scholar 

  • Neumark D, Wascher W (2000) A case study of the fast-food industry in New Jersey and Pennsylvania: comment. Am Econ Rev 90(5):1362–1396

    Article  Google Scholar 

  • Neumark D, Wascher W (2006) Minimum wages and employment: a review of evidence from the new minimum wage research. NBER Working Paper No. 12663

  • Partridge M, Partridge J (1998) Are teen unemployment rates influenced by state minimum wage laws? Growth Change 29(4):359–382

    Article  Google Scholar 

  • Partridge M, Partridge J (1999) Do minimum wage hikes reduce employment? State-level evidence from the low-wage retail sector. J Labor Res 20(3):393–413

    Article  Google Scholar 

  • Schiller B (1994) State minimum wage laws: youth coverage and impact. J Labor Res 15(4):317–329

    Article  Google Scholar 

  • Wessels W (1993) The minimum wage and tipped employees. J Labor Res 14(3):213–226

    Article  Google Scholar 

  • Williams N (1993) Regional effects of the minimum wage on teenage employment. Appl Econ 25(12):1517–1528

    Article  Google Scholar 

  • Zavodny M (2000) The effect of the minimum wage on employment and hours. Labour Econ 7(6):729–750

    Article  Google Scholar 

Download references

Acknowledgements

The authors would like to thank Diana Castillo-Trejo and Adam Lucchesi for their excellent research assistance.

Author information

Authors and Affiliations

  1. Department of Economics, Ohio University, 351 Bentley Annex, Athens, OH, 45701, USA

    Charlene M. Kalenkoski

  2. Department of Economics, Ohio University, 345 Bentley Annex, Athens, OH, 45701, USA

    Donald J. Lacombe

Authors
  1. Charlene M. Kalenkoski
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Donald J. Lacombe
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Charlene M. Kalenkoski.

Rights and permissions

Reprints and Permissions

About this article

Cite this article

Kalenkoski, C.M., Lacombe, D.J. Effects of Minimum Wages on Youth Employment: the Importance of Accounting for Spatial Correlation. J Labor Res 29, 303–317 (2008). https://doi.org/10.1007/s12122-007-9038-6

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s12122-007-9038-6

Keywords

  • Spatial econometrics
  • Spatial autoregressive model
  • Minimum wage
  • Youth employment