Product market evidence on the employment effects of the minimum wage
By: Daniel Aaronson and Eric French.
Contributors: French, Eric.
Series: Working paper series ;; WP-2003-17; Working paper series (Federal Reserve Bank of Chicago. Research Dept. : Online) ;; WP-2003-17.
Publisher: Federal Reserve Bank of Chicago
Published: 2003
Place of publication: [Chicago, Ill.]
Language: eng
Format: Electronic resource
Description: "We calibrate a model of labor demand to infer the employment responseto a change in the minimum wage in the food away from home industry.  Assuming a perfectly competi- tive labor market, the model predicts a 2.5 to 3.5 percent fall in employment in response to a 10 percent minimum wage change.  We then introduce monopsony power in local la- bor markets.  We identify the extent of monopsony power using information on the degree to which minimum wage cost shocks are passed on to consumers in the form of higher prices.  Whereas the competitive model implies that employment falls and prices rise in response to an increase in the minimum wage, the monopsony model potentially implies that employment can rise and prices fall in response to an increase in the minimum wage.  Previous research shows that prices rise in response to an increase in the minimum wage.  We show that this price response is consistent with the prediction of the competitive model.  Calibrating the full model, we can place fairly tight bounds on the elasticity of demand for labor with the most plausible parameter values suggesting a 2 to 3 percent loss in employment in reaction to a 10 percent increase in the minimum wage"--Federal Reserve Bank of Chicago web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 10/1/2004.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.