Minimum wage impacts on job creation & destruction in the U.S.A
I explore the impact of minimum wage legislation on separate measurements of jobs created and jobs destroyed, in an effort to better understand the changes in employment. I use a broader range of control variables than typically used in minimum wage studies, in part to reflect the focus on total rather than age- or sector-specific employment. For the sake of timeliness, I focus on the past decade.
Methods/Data
My estimating equation takes a form appropriate for panel study data. On the right-hand side of the equation is a vector of independent variables reflecting characteristics of the state’s minimum wage, a vector of other state characteristics that could affect long-term economic growth as well as short-term fluctuations in economic activity (lagged one period), and a term for state fixed effects. On the left-hand side of the equation is one of three dependent variables of interest (job creation rate, job destruction rate, and net job creation rate). It is assumed that the stochastic error follows a first-order autoregressive scheme that must be addressed by the estimation method.
The 2002-2010 data used in my analysis come from several sources, including the U.S. Census Bureau, the Hirsch and Macpherson Union Membership and Coverage Database, the U.S. Department of Commerce, the U.S. Department of Energy, and the U.S. Department of Labor.
Results
Like many previous studies of minimum wage, this study finds damaging effects related to minimum wages. Specifically, it finds that both a higher minimum wage level and a greater rate of increase in minimum wage levels are linked to an increased rate of job destruction and decreased net rates of job creation.
The estimation results also suggest that a number of other significant factors affect these rates. Additional significant factors affecting net job creation rates include strength of labor unions (-), age composition of the population (+ for youngest group, - for older groups), inflation rate of energy price (-) and relative size of government (-). These effects are largely consistent with theoretical expectations and/or previous research.
Discussion
The findings concerning minimum wage and relative size of government may fuel criticisms of current government policies. However, before condemning government policies, one must consider all possible benefits and costs, in both short- and long-run. This study has focused on the immediate impacts on jobs only, leaving analysis of earnings, income distribution, poverty, hunger, social unrest, etc., to be explored by others.