NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Unexpected Long-Run Impact of the Minimum Wage: An Educational Cascade

Richard Sutch

NBER Working Paper No. 16355
Issued in September 2010
NBER Program(s):   DAE

Neglected, but significant, the long-run consequence of the minimum wage – which was made national policy in the United States in 1938 – is its stimulation of capital deepening. This took two forms. First, the engineered shortage of low-skill, low-paying jobs induced teenagers to invest in additional human capital – primarily by extending their schooling – in an attempt to raise their productivity to the level required to gain employment. Second, employers faced with an inability to legally hire low-wage workers, rearranged their production processes to substitute capital for low-skill labor and to innovate new technologies. This paper explores the impact of the minimum wage on enrollments between 1950 and 2003. I describe an upward ratcheting mechanism which triggers an “educational cascade.” My estimate is that the average number of years of high school enrollment would have risen to only 3.5 years, rather than 3.7 years, for men born in 1951. Thereafter, enrollment rates would have trended down to about 3.2 years for the cohort born in 1986, rather than slowly rising to around 3.9 years. The cumulative effect of the minimum wage increases beginning in 1950 was to add 0.7 years to the average high school experience of men born in 1986.

download in pdf format
   (290 K)

email paper

This paper is available as PDF (290 K) or via email.

A data appendix is available at http://www.nber.org/data-appendix/w16355

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w16355

Users who downloaded this paper also downloaded these:
Neumark, Salas, and Wascher w18681 Revisiting the Minimum Wage-Employment Debate: Throwing Out the Baby with the Bathwater?
Meer and West w19262 Effects of the Minimum Wage on Employment Dynamics
Neumark and Wascher w6127 Do Minimum Wages Fight Poverty?
Brown, Gilroy, and Kohen w0846 The Effect of the Minimum Wage on Employment and Unemployment: A Survey
Neumark and Nizalova w10656 Minimum Wage Effects in the Longer Run
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us