high-noncompliance rates and weak enforcement, the minimum wage did not reduce aggregate wage inequality in Thailand. Despite evidence that it did compress the wage distribution within large businesses in the covered sector, the effect of the minimum wage did not extend to low and medium firms in the covered sector. There is also evidence the minimum wage reduced the gender wage gap in urban China in the long run, especially among low-wage workers (Li and Ma, 2015).

**The impact of the minimum wage on employment:** Even though the minimum wage increases the wages of lower-income workers and reduces wage inequality, the aggregate welfare effect of the minimum wage depends also on the effect it has on employment. If, for example, the wages of few rise while the employment of many declines, the aggregate welfare impact will likely be negative, particularly for low-income workers.<sup>12</sup> Recent literature reviews show there is variation across studies when it comes to employment findings, but that the weight of the evidence suggests any job losses are quite small (Dube, 2019; Manning, 2021a), with a median own-wage elasticity across all studies and countries reviewed (US, UK, Germany, Hungary) of _−_ 0.16 (Dube, 2019). The quality of the evidence, when considered, reinforces that conclusion. However, a disagreeing view is that of Neumark (2019), who reviews the evidence and argues there are specific methodological and economic reasons—such as the use of close controls or the inclusion of trends for treated and control areas—that help explain the discrepancies in the results from minimum wage studies on employment. Both (in his view, faulted) techniques are associated with finding smaller disemployment effects. The economic reasons that, according to the author, explain the differences in the literature include: the bite of the minimum wage, whether the study focuses on affected workers, the existence of labor-labor substitution, and whether the study uses monopsony models. However, the evidence supporting these arguments is at best mixed (as we will discuss in detail in the next paragraphs), with the exception of accounting for monopsony power, which has been shown to be key when studying the effects minimum wage has on employment.

The most recent studies on the employment effect of the minimum wage (with the most rigorous methodologies and highest-quality administrative datasets) do not find substantive negative employment effects. For Germany, where the minimum wage was introduced in 2015, Dustmann et al. (2022) find no disemployment effect since affected workers reallocate to more productive firms, and Ahlfeldt et al. (2022) find an almost negligible reduction in employment of 0.3% in an equivalent period (2011–2016 of the former; 2011–2018 of the latter). Moreover, Ahlfeldt et al. (2018) find no reduction of employment in the first 2 years following the introduction of the minimum wage even in German low-wage regions. For the United States, Cengiz et al. (2022) find that the number of low-wage jobs remained essentially unchanged over the 5 years following an increase in the minimum wage, pointing toward negligible employment effects not only in the short run but also in the longer run. Similarly, Cengiz et al. (2019) use a differences-in-differences approach to measure the effects of

> 12Hurst et al. (2022) use a putty-clay technology model to study the (long-run) welfare impact of different policies on low-wage individuals in which employment cannot be adjusted immediately after the minimum wage rise. The authors find within the lenses of the model that minimum wage has a small employment effect in the short run, but a larger negative one in the long run and thus adverse welfare consequences. From their estimation, it then follows that introducing an Earned Income Tax Credit (EITC) can be more welfare-enhancing than a minimum wage hike. However, the authors also show that the most optimal policy to increase the welfare of low-wage individuals in the long run is a combination of a small minimum wage increase and an EITC. Likewise, more tax progressivity could lead to similar results.

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