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supported these expectations. Estimates of formal sector employment impacts are sometimes insignificant or positive, either because of monopsonistic employer behavior or limited compliance. And, several studies have found that minimum wage increases resulted in wage gains in the informal sector, most probably because of what is known as the “lighthouse” effect.

The proliferation of research on the minimum wage has contributed to a deeper understanding of how labor markets operate, but many questions remain about the impacts of the instrument itself. As we have already noted, and will further detail below, there is no clearer consensus on its employment impacts. Moreover, analysts continue to focus on employment and wage effects, with little research on other impacts that should be of interest to policy-makers.

# **_3.1 Impacts on living standards_**

The minimum wage has consequences for living standards through its effects on the availability of employment, especially good jobs, and on the level and structure of earnings. The proliferation of studies on employment and wage impacts means that living standards is the area where knowledge has expanded the most.

# _Employment_

Research done up to the 1980s was primarily based on U.S. times-series data and typically found negative employment impacts. In a comprehensive review of the analysis up to that time, Brown, Gilroy, and Kohen (1983) estimated that the elasticity of teenage employment with respect to the minimum wage was in the -0.1 to -0.3 range (i.e., a 10% increase in the minimum wage reduced teenage employment by 1-3%). According to Neumark and Wascher (2007), this became the consensus view among economists.

Beginning in the early 1990s, a new wave of studies significantly expanded the minimum wage research in a number of ways (Neumark and Wascher 2007). First, new econometric techniques were applied to the (continually longer) time-series data. Second, new research designs were introduced based on variations in within-country minimum wages (e.g., U.S. states). Third, new data sources were employed, including, for example, the employer phone interviews used in the well-known Card-Krueger-Katz studies. Fourth, more and more research was carried out in developed countries besides the U.S. and in an increasing number of developing countries, which meant that the minimum wage could be studied in a variety of economic and institutional settings.

An important development in extending—and complicating—the minimum wage literature was the series of studies by Card, Krueger, and Katz in the early-to-mid 1990s.<sup>14</sup> Their research exploited state-level variations in minimum wages, using Current Population Survey data (e.g., Card 1992) or phone survey data from fast-food establishments (Katz and Krueger 1992; Card and Krueger 1994) to model employment impacts. The studies consistently found significant positive employment effects of minimum wages, with elasticities ranging from .35 (teenagers) (Card 1992), to .73 (Card and Krueger 1994), all the way up to 1.70-2.65 (Katz and Krueger 1992).

14 For a complete treatment of this research, including the particularly influential New Jersey-Pennsylvania fast food study, see Card and Krueger (1995).