Does the employment effect of National Minimum Wage vary by non-employment rate? A regression discontinuity approach

Lei Xu (Lead / Corresponding author), Yu Zhu

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Abstract

We extend the Regression Discontinuity model to evaluate the procyclicality of employment effect of minimum wage and show that previous estimates may be biased due to failure to account for the local non-employment rate. The results suggest that the positive employment effect of increasing minimum wage is strongly procyclical, that is, is more pronounced in areas with low non-employment rates. Under an assumption that employers have no direct impact around the cut-off point, the results suggest that a higher minimum wage increases labour supply of young workers.

Original languageEnglish
Pages (from-to)18-36
Number of pages19
JournalManchester School
Volume91
Issue number1
Early online date29 Nov 2022
DOIs
Publication statusPublished - Jan 2023

Keywords

  • minimum wage
  • macroeconomic fluctuation
  • regression discontinuity
  • age dependent
  • procyclicality

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