Danish minimum wage data (it ain’t monopsony)

This paper estimates the long-run impact of youth minimum wages on youth employment by exploiting a large discontinuity in Danish minimum wage rules at age 18 and using monthly payroll records for the Danish population. We show theoretically how the discontinuity in the minimum wage may be exploited to estimate the casual effect of a change in the minimum wage of youth on their employment. On average, the hourly wage rate jumps up by 40 percent when individuals turn eighteen years old. Employment (extensive margin) falls by 33 percent and total labor input (extensive and intensive margin) decreases by around 45 percent, leaving the aggregate wage payment nearly unchanged. Data on flows into and out of employment show that the drop in employment is driven almost entirely by job loss when individuals turn 18 years old. We estimate that the relevant elasticity for evaluating the effect on youth employment of changes in their minimum wage is about -0.8.

Here is the paper by Claus Thustrup Kreiner, Daniel Reck, and Peer Ebbesen Skov.  For Mississippi it might be worse.

I’ll suggest a general methodological approach here.  I think that for Mississippi the chances for this kind of outcome are at least 0.8.  Maybe for many of the richer states it would be 0.4?  Based on those probabilities, I don’t want to do it, even if you think it is “more likely” that in most areas a higher minimum wage won’t destroy many jobs.  What probabilities would be offered by those who defend a minimum wage hike?

Via Bob B.


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