The Effect of Legislated Minimum Wage Increases on Employment and Hours: A Dynamic Analysis

We present a dynamic policy simulation analysing what would have happened to wages, employment, and total hours had the federal minimum wage increased in September 1998, a year after the last actual increase in our data. Prior work suggests that employment responses take 6 years to play out. Using a time-series model for 23 low-wage industries, we find a positive response of average wages over 54 months following an increase in the minimum wage, but neither employment nor hours can be distinguished from random noise. Ignoring confidence intervals, the adjustment of hours is complete after 1 year, the adjustment of employment after no more than two and one half years. Copyright 2010 CEIS, Fondazione Giacomo Brodolini and Blackwell Publishing Ltd.