Minimum Wage and Unemployment: An Empirical Study on OECD Countries
DOI:
https://doi.org/10.6000/1929-7092.2018.07.01Keywords:
Minimum Wage, Unemployment, Skilled and Unskilled Labor.Abstract
With ongoing increasing minimum wage and political debates underway, minimum wage and its impacts on the labor market are one of the most important items on policymakers' agendas worldwide. In this paper, we attempt to explain how labor demand and supply respond to minimum wage increases. In our model, firms can hire either skilled or unskilled workers to maximize their profits. With data from 25 OECD countries over 15 years from 2000 to 2014, we find that a higher minimum wage decreases labor demand but does not affect labor supply. Our empirical results also suggest that relatively modest increases in minimum wages have limited impacts on employment. On average, 10 percent increase in the minimum wage decreases employment by 0.7 percent, thereby increasing unemployment rate by 0.64 percent.References
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Dube, Andrajit; Lester, T. William and Reich, Michael. “Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties.” Institute for Research on Labor and Employment (University of California, CA) Working Paper No. 157-07, November 2010.
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https://doi.org/10.1086/666921
Grossman, Jean B. “The Impact of the Minimum Wage on Other Wages.” Journal of Human Resources, Summer 1983, 18(3), pp. 359-378.
https://doi.org/10.2307/145206
Kalenkoski, Charlene M. and Lacombe, Donald J. “Effects of Minimum Wages on Youth Employment: the Importance of Accounting for Spatial Correlation.” Journal of Labor Research, September 2007, 29, pp. 303-317.
https://doi.org/10.1007/s12122-007-9038-6
Kertesi, Gabor and Kollo, Janos. “Fighting “Low Equilibria” by Doubling the Minimum Wage? Hungary’s Experiment.” IZA Discussion Paper No. 970, December 2003.
Krueger, Alan B. “The Effect of the Minimum Wage When It Really Bites: A Reexamination of the Evidence from Puerto Rico.” National Bureau of Economic Research (NBER) Working Paper No. 4757, June 1994.
Metcalf, David. “Why has the British National Minimum Wage had Little or No Impact on Employmnet?” Journal of Industrial Relations, June 2008, 50(3), pp. 489-512.
https://doi.org/10.1177/0022185608090003
Neumark, David; Schweitzer, Mark and Wascher, William. “Minimum Wage Effects throughout the Wage Distribution.” Journal of Human Resources, Spring 2004, 39(2), pp. 425-450.
Neumark, David and Wascher, William. “Minimum Wages and Employment.” IZA Discussion Paper No. 2570, January 2007.
https://doi.org/10.2307/3559021
Schmitt, John. “Why Does the Minimum Wage Have No Discernible Effect on Employment?” Center for Economic and Policy Research, February 2013.
Welch, Finis and Cunningham, James. “Effects of Minimum Wages on the Level and Age Composition of Youth Employment.” Review of Economics and Statistics, February 1978, 60(1), pp. 140-145.
https://doi.org/10.2307/1924342
Card, David. “Using Regional Variation in Wages to Measure the Effects of the Federal Minimum Wage.” Industrial and Labor Relations Review, October 1992, 46(1), pp. 22-37.
https://doi.org/10.1177/001979399204600103
Card, David and Krueger, Alan B. “Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania.” American Economic Review, September 1994, 84(4), pp. 772-793.
____________. “Time-Series Minimum-Wage Studies: A Meta-analysis.” American Economic Review, May 1995, pp. 238-243.
____________. Myth and Measurement: The New Economics of the Minimum Wage, New Jersey: Princeton University Press, 1995.
Castillo-Freeman, Alida and Freeman, Richard B. “When the Minimum Wage Really Bites: The Effect of the U.S.-Level Minimum on Puerto Rico.” Immigration and the Workforce: Economic Consequences for the United States and Source Area, University of Chicago Press, 1992.
Dube, Andrajit; Lester, T. William and Reich, Michael. “Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties.” Institute for Research on Labor and Employment (University of California, CA) Working Paper No. 157-07, November 2010.
Giuliano, Laura. “Minimum Wage Effects on Employment, Substitution, and the Teenage Labor Supply: Evidence from Personnel Data.” Journal of Labor Economics, December 2012, 31(1), pp. 155-194.
https://doi.org/10.1086/666921
Grossman, Jean B. “The Impact of the Minimum Wage on Other Wages.” Journal of Human Resources, Summer 1983, 18(3), pp. 359-378.
https://doi.org/10.2307/145206
Kalenkoski, Charlene M. and Lacombe, Donald J. “Effects of Minimum Wages on Youth Employment: the Importance of Accounting for Spatial Correlation.” Journal of Labor Research, September 2007, 29, pp. 303-317.
https://doi.org/10.1007/s12122-007-9038-6
Kertesi, Gabor and Kollo, Janos. “Fighting “Low Equilibria” by Doubling the Minimum Wage? Hungary’s Experiment.” IZA Discussion Paper No. 970, December 2003.
Krueger, Alan B. “The Effect of the Minimum Wage When It Really Bites: A Reexamination of the Evidence from Puerto Rico.” National Bureau of Economic Research (NBER) Working Paper No. 4757, June 1994.
Metcalf, David. “Why has the British National Minimum Wage had Little or No Impact on Employmnet?” Journal of Industrial Relations, June 2008, 50(3), pp. 489-512.
https://doi.org/10.1177/0022185608090003
Neumark, David; Schweitzer, Mark and Wascher, William. “Minimum Wage Effects throughout the Wage Distribution.” Journal of Human Resources, Spring 2004, 39(2), pp. 425-450.
Neumark, David and Wascher, William. “Minimum Wages and Employment.” IZA Discussion Paper No. 2570, January 2007.
https://doi.org/10.2307/3559021
Schmitt, John. “Why Does the Minimum Wage Have No Discernible Effect on Employment?” Center for Economic and Policy Research, February 2013.
Welch, Finis and Cunningham, James. “Effects of Minimum Wages on the Level and Age Composition of Youth Employment.” Review of Economics and Statistics, February 1978, 60(1), pp. 140-145.
https://doi.org/10.2307/1924342
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Published
2018-02-19
How to Cite
Kim, C. U., & Lim, G. (2018). Minimum Wage and Unemployment: An Empirical Study on OECD Countries. Journal of Reviews on Global Economics, 7, 1–9. https://doi.org/10.6000/1929-7092.2018.07.01
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