ECON 3029 –
“USING REGIONAL VARIATION IN WAGES TO MEASURE THE EFFECTS OF THE FEDERAL MINIMUM WAGE.”
One of the major criticisms of the federal minimum wage is that it imposes a higher relative wage floor with lower wage averages. This paper examines the April 1990 rise in the federal minimum wage to evaluate the effects of minimum wages on the teenage labour market. These state specific wage floors created remarkable geographic dispersion in teenage wage rates, setting the stage for the empirical analysis. The fed increased minimum wage to $3.35 per hour in January 1981 and the decline in the real value of the federal minimum wage prompted state legislatures and wage boards to respond. A bill providing for smaller wage increases and a liberalized youth subminimum was introduced and passed in 1989. This bill was raised in two steps with an increase to $3.80 in April 1990 and then to $4.25 in April 1991, set to benefit employees aged 16 to 19. Consequently tipped employees’ wages were increased from $2.01 to $2.09 per hour. This wage increase had shown an annual sales volume increase in the retail and service industry by almost doubling sales. Because teenagers are typically at the bottom of the earnings distribution, and because a large fraction of low paid workers are teenagers, the minimum wage literature has concentrated on the youth labour market. There is only a slight dip in the fraction earning less than $3.80 per hour in the first quarter of 1990. Most employers waited until the effective date to increase the wages of their teenage employees. Before looking to a regional analysis of the effects of the increased federal minimum wage, it may prove effective to aggregate the change in teenage employment between 1989 and 1990 as much of the existing literature used the correlation between the minimum wages and the aggregate teenage employment to infer the effect of...
Bibliography: David Card (1992) “Using Regional Variation in Wages to Measure the effects of the Federal Minimum Wage.” Industrial and Labor Relations Review, pp. 22-37
Please join StudyMode to read the full document