Do Higher Real Minimum Wages Lead to More High School Dropouts? Evidence from Maryland Across Races, 1993–2004

I Introduction THE EXTENDED PERIOD without increases in the federal minimum wage from September 1, 1997 to July 24, 2007 meant that the real purchasing power of the minimum wage had fallen by over one-fifth. During this time, many voters, policymakers, and academics favored maintaining (or increasing) the real level of the minimum wage. In this view, a moderately high wage floor would benefit not only recipients but also society as a whole, reducing poverty rates and having small, if any, effects on overall employment levels. After this period without increases, the federal minimum wage was scheduled to increase in 70-cent increments on July 24 of 2007, 2008, and 2009. Many studies, however, dispute that higher minimum wages have such positive effects. Some studies report that higher minimum wages have negative effects on various overall labor market measures. Other studies point out that workers may be heterogeneous, differing, for instance, in their educational level, professional experience, skills, and age. For teenagers and young adults, relevant variables include one's parents' educational attainment and income. Thus, some studies report that "one size fits all" increases in minimum wages turn out to benefit some groups but hurt others. Since, for instance, the educational attainment and income of teenagers' parents vary widely across various races and ethnicities, changes in the minimum wage may have differing effects across races and ethnicities. Yet other studies focus on the effect that higher minimum wages might have outside of labor markets, such as on teenagers' school enrollment (or, conversely, high school dropout rates). Here, we explore whether higher levels of the real minimum wage have differing effects on high school dropout rates across students of various races and ethnicities (whites, African Americans, Hispanics, and Asians). We used a panel of data across Maryland counties and annual observations in 1993-2004 and a variety of model specifications and independent variables. Several of our findings regarding the relationships across races and ethnicities between dropout rates and levels of (1) educational attainment among local adults, (2) local income, (3) local unemployment rates, and (4) the minimum wage are broadly consistent with commonly reported sociological observations. These observations include how behavioral choices may be affected by different levels across races and ethnicities of (1) cultural integration of recent immigrants, (2) family cohesiveness, (3) the value placed on education, (4) small business ownership, and (5) hourly (vs. salaried) employment. For instance, we found that higher educational attainment in the local adult population was associated with lower dropout rates for white and African-American students, but not for Hispanic and Asian students. This finding likely reflects Hispanic and Asian students growing up in communities with larger shares of recent immigrants, who may still be in the process of integrating socially and culturally into their broader local communities. Conversely, while the dropout rates of Hispanic and Asian students are less responsive to local cultural influences, they seem, perhaps temporarily, more responsive to local long-term economic conditions. In particular, dropout rates were higher in higher-income counties (where jobs for teenagers may be more readily available) for Hispanic and Asian students, but not for white and African-American students. Our results highlight both the value and the difficulties to be found in pursuing sociological explanations for statistical findings. For instance, we found that lower local unemployment rates (our proxy for local short-term economic conditions) were associated with higher dropout rates for white and African-American students, but not for Hispanic and Asian students. This finding might reflect Hispanic and Asian students who place more importance on their families' cultural values and overall financial situation and less on individual short-term calculations. …