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David Neumark, William Wascher
NBER Working Paper No. 5092*
Issued in April 1995
NBER Program(s): LS
---- Abstract -----
The recent debate over minimum wages raises two questions. First, should policy makers no longer believe that minimum wages entail negative consequences for teenagers? Second, should economists discard the competitive labor market model? Our evidence for teenagers, using matched CPS surveys, suggests that the answer to both of these questions is no. We find that although increases in minimum wages have small net effects on overall teen employment rates, such increases raise the probability that more-skilled teenagers leave school and displace lower-skilled workers from their jobs. These findings are consistent with the predictions of a competitive labor market model that recognizes skill differences among workers. In addition, we find that the displaced lower-skilled workers are more likely to end up non-enrolled and non-employed. Thus, despite the small net disemployment effects for teenagers as a group, there are significant enrollment and employment shifts associated with minimum wage changes that should be of concern to policy makers.
*Published: With Rosella Gardecki, published as "Order from Chaos? The Effects of Early Labor Market Experiences on Adult Labor Market Outcomes", Industrialand Labor Relations Review, Vol. 51, no. 2 (January 1998): 299-322.
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