Impact of Minimum Wages on Employment

Using Federal Minimum Wages to Identify the Impact of Minimum Wages on Employment and Earnings across the U.S. States December, 2012 Abstract The magnitude of the impact of minimum wages on employment is a hotly debated topic in policy and academic circles. In this paper, we use cross-state di¤erences in the impact of adjustments in federal minimum wages on e¤ective minimum wages in each state - the maximum of federal and state minimum wages - to reassess this question and explain biases in past research. A rise in the federal minimum wage will have a larger impact on a state’s e¤ective minimum wage in states in which federal minimum wages are binding. Using CPS data for 1977-2007, we …nd notable wage impacts and large corresponding disemployment e¤ects, yet only when we utilize the di¤erential in‡uences of federal minimum wages to instrument for state wage ‡oors. State e¤ective minimum wages are procyclical. Accounting for the endogenous determination of e¤ective minimum wages at the state level turns out to be materially important for drawing accurate inferences about the impact of minimum wages on employment. 1 Introduction Today, more than 65 years after Stigler’s (1946) classic analysis, the magnitude of the impact of minimum wages on employment remains a hotly debated topic in policy and academic circles. By the 1980s, a clear consensus had developed that increases in minimum wage rates had statistically signi…cant but economically modest e¤ects (Brown, Gilroy, and Kohen 1982; Brown 1988). Since then, as the use of micro data became more popular, a large body of research has provided con‡icting evidence regarding the impact of minimum wages on employment. While some research supports the neoclassical view that minimum wages substantially reduce employment, (Neumark and Wascher, 1992, 1995, 2000; Deere, Murphy and Welch, 1995; Burkhauser et al., 2000; Machin, Manning and Rahman, 2003), other studies fail to …nd disemployment e¤ects from minimum wages (Card, 1992a,b; Katz and Krueger, 1992; Card and Krueger, 1994; Machin and Manning, 1994; Card and Krueger, 1995; Dickens, Machin and Manning, 1999).1 The most popular empirical approaches - the cross-market and case-study approaches - use state e¤ective minimum wages in each state - the maximum of federal and state minimum wages - to identify employment and earnings e¤ects on low-wage workers. Researchers have implicitly assumed that state-level decisions to adjust state minimum wage rates in response to federal minimum wage policies are exogenous to ‡uctuations in the local demand for unskilled labor. Political discontinuities (state borders) within local markets were employed to further account for latent local shocks, yet, by limiting that analysis to particular "non-tradable" low-wage services (for example the fast-food industry; Katz and Krueger, 1992; Card and Krueger, 1994). In this paper, we o¤er a new approach to identify the impact of minimum wage rates on employment and earnings in the cross-state setting. We make two conceptual contributions. First, at a very simple, direct level, a rise in the federal minimum wage will have a di¤erential e¤ect on a state’s e¤ective minimum wage. If the old and new federal minimums are not binding in a state, then the federal laws and changes in those laws will not directly in‡uence the state e¤ective minimum wage. Alternatively, if the federal minimum is legally binding, then an increase in the federal minimum will have a direct e¤ect on a state’s e¤ective minimum wage. Thus, adjustments in the federal minimum can have di¤erential e¤ects depending on the pre-existing level of the state’s minimum wage rate. This is the …rst paper to exploit the fact that a change in 1 See Brown (1999), Card and Krueger (1995) and Neumark and Wascher (2008) for comprehensive surveys on the literature. 1 the federal minimum wage has di¤erential e¤ects on the e¤ective minimum wage rate operating in each state. Second, although we join past researchers in taking federal minimum wage rates as exogenous in examining state-level responses (Card, 1992a), we break from past researchers in that we do not assume that a state’s choice of its own minimum wage rate is exogenous to state-level politics and labor market conditions. We recognize that a state’s minimum wage rate responds to ‡uctuations in the demand for lowpaid workers and may respond to adjustments in the federal minimum wage rate even when the federal standard is not binding – based on the political and economic conditions. We utilize the persistent cross-state disparities in living standards and political preferences - rather than recent policy choices - to isolate the external e¤ect of federal adjustment in national minimum wages on state e¤ective minimum wages. There is a notable dispersion in the degree to which federal minimum wages are binding on states, i.e. the degree to which federal minimum wages de…ne a state’s e¤ective minimum wage, as shown in Figure 1. Furthermore, much of the cross state variation in state minimum wage policy is associated with persistent cross-state disparities in living standards and political preferences regarding state minimum wage policies, as shown in Table 1. This highlights the applicability of our methodological contribution: It is possible to di¤erentiate the impact of federal minimum wage laws on the e¤ective minimum wage rate in each state by using historical measures of income and political preferences rather than recent policy choices. Intuitively, a rise in federal minimum wage is fully re‡ected in a state’s e¤ective minimum wage in states where those federal minimums were already binding and is expected to have a milder impact on other states. Therefore, it is not surprising to …nd that federal minimum wages have a larger impact on e¤ective minimum wages in states that were traditionally restricted by federal wage ‡oors (Table 2). In this paper, we utilize the di¤erential impact of federal minimum wages on state e¤ective minimum wages - depending on the persistent cross-state disparities in living standards and political preferences regarding state minimum wage policies - to identify an external source of variation in state e¤ective minimum wages and evaluate the impact of minimum wages on the employment and wage rates of teenagers. Accounting for the endogenous determination of e¤ective minimum wages at the state level turns out to be materially important for drawing accurate inferences about the impact of minimum wages on employment. Using data on federal and state minimum wages for the years 1968 to 2007 and 2 proxies of income per capita and political preferences, measured in the 1960s (Berry’s et al.,1998), we impute states’propensity to be restricted by federal minimum wages. We use both the crude proportion of years between 1968 to 1976 that a state was restricted by federal minimum wages and convert (using a Probit model) income per capita and political preferences into a time invariant state-speci…c propensity score.2 Following previous national-level cross-state studies, we use state-year teenage aggregate outcomes constructed from the Current Population Survey (hereafter CPS) May …les to estimate minimum wage e¤ects on employment and earnings. Since the CPS identi…es only 22 states prior to 1977, our main analysis focuses on the years 1977 to 2007. To compare our strategy and …ndings with previous studies, we take two lines within a common framework. Our benchmark reduced form model follows Card’s and Krueger’s (1995) preferred state-year speci…cation. Since long-run di¤erences in wage rates are subject to composition bias, we restrict our wage analysis to …rst-di¤erence speci…cations. In contrast to past work, we …nd substantial disemployment e¤ects of minimum wages on teenagers. The estimated Two Stage Least Squares (TSLS) employment elasticity with respect to minimum wages in the standard state-year level speci…cation is approximately -1. These results are robust to the use of alternative speci…cations for imputing states’propensity to be bounded by federal minimum wages. Furthermore, consistent with recent …ndings by Dube, Lester, and Reich (2010), we …nd that OLS estimates are somewhat milder and statistically insigni…cant once we account for spatial heterogeneity using regional time e¤ects. Yet, in contrast, our TSLS estimates are robust to the inclusion of regional time e¤ects and state-speci…c long-run trends. We also show that state e¤ective minimum wages are procyclical, yet only for states that typically were NOT restricted by federal minimum wages. These …ndings are consistent with the interpretation that state legislators increase state speci…c wage ‡oors when the local economy is booming. From the evaluation perspective, these …ndings suggest that the use of state e¤ective minimum wages to estimate employment e¤ects understates the impact of labor ‡oor prices on the employment of low-wage workers. Adjustments in minimum wages should be re‡ected instantaneously in wages and not much later (if at all) in employment. Therefore, changes in employment and wages around the actual times of adjustments in minimum wages allows to further separate 2 The government ideology index by Berry et al (1998) has previously been utilized in the political economy setting by Besley and Case (2003) and Besley (2004). 3 the impacts of minimum wages from state-speci…c trends. Employed with the 19772007 May …les, we evaluate the short-run impacts of minimum wages by estimating reduced form employment and wage …rst order di¤erence equations. Consistent with our long-run estimates, the source of variation in state e¤ective minimum wages matter. We …nd no employment e¤ects and mild wage e¤ects using state e¤ective minimum wages. In contrast, we …nd notable wage e¤ects and corresponding disemployment e¤ects when we utilize the adjustments in federal minimum wages. The short-run e¤ect of minimum wage (in logs) on employment ranges between -0.3 to -0.5, whereas the impact on hourly wages is approximately as twice larger. These results hold when we control for regional year e¤ects and state-speci…c non-linear trends in employment and wage changes. We are not the …rst to take federal minimum wage rates as exogenous in examining state-level responses in employment and earnings. In an in‡uential paper, Card (1992a) builds on Stigler’s (1946) observation that a uniform national minimum wage ‡oor is implicitly more restrictive in states with lower average wages. Using the April 1990 increase in federal minimum wage and the cross states variation in the proportion of teenagers reporting hourly wages between January 1989’s federal minimum wage ($3.35) and April 1990’s federal minimum wage ($3.79) in 1989 - the "fraction a¤ected" - Card estimates, indirectly, the impact of minimum wages on teenagers’employment and wage rates. Card found that the rise in the minimum wage raised average teenage wages and no evidence of corresponding losses in teenage employment. Interestingly, the same set of adjustments in federal minimum wages lead to con‡icting reduced form employment e¤ects, depending whether we utilize those to approximate the fraction of workers a¤ected or the in‡uences on state e¤ective minimum wage ‡oors. A possible explanation is that the fraction of a¤ected workers is not exogenous to ‡uctuations in the demand (and supply) for labor at the state-level. The correlation between the fraction of a¤ected workers and lagged changes in state aggregate unemployment con…rms this concern. The fraction of workers a¤ected exhibits procyclical patterns. While the adjustments in federal wage standards are presumably exogenous to local ‡uctuations in demand and supply their re‡ection on the fraction of workers a¤ected is not. In what follows, section II provides an overview of the data sources and processing. Section III presents the econometric setting. Section IV portraits the di¤erential in‡uence of adjustments in federal minimum wages on state e¤ective wage ‡oors. In section V, we report our …ndings using the cross-year cross-state setting. Sections VI 4 and VII use the timing around the adjustments in federal minimum wages to identify alternative treatments and estimate short run e¤ects. We conclude in section VIII. 2 Data Minimum Wage Data Our minimum wage sample covers the years between 1968 and 2007. Except for the District of Columbia, all the minimum wage data used in this study are taken from the Bureau of Labor Statistics (BLS).3 We use state and federal minimum wages in May when using CPS May …les. Following Card et al. (1994) and Card and Krueger (1995), we do not de‡ate the states’e¤ective minimum wages with the average adult wages of the state. Rather, we de‡ate by the Consumer Price Index for All Urban Consumers provided by BLS to 2000 dollars.4 Finally, since the coverage of the minimum wages has been fairly stable since mid-1970s, as shown by Brown (1999), we follow the practice by Card et al. (1994), Card and Krueger (1995) and Burkhauser et al. (2000) and do not adjust minimum wages by coverage rates.5 Aggregate Employment and Earnings Outcomes: CPS May Data Following existing cross-state studies, we use the Current Population Survey May …les (CPS May) to obtain state-year employment and earnings. Prior to 1977 states cannot be separately identi…ed in the CPS. Therefore we focus on the period 1977 to 2007.6 Our main sample contains 1550 state-year observations, excluding the District of Columbia. We also follow the literature, such as Neumark and Wascher (1992), Card 3 For District of Columbia, where there are multiple minimum wages for di¤erent occupations and experience before 1993, we used the weighted average rates as used by Neumark and Wascher (1992), Card et al. (1994), Card and Krueger (1995) and Burkhauser et al. (2000) for January of each year. For 1994 and onwards, i.e. the period in which District of Columbia implemented uniform rate for all occupations, the data has been obtained from BLS and Department of Labor. A particular practice observed in some states is the multiple-track minimum wage system, where the lower rate applied to the newly covered persons or learners. For such cases, we strictly follow the earlier practices the literature, such as Neumark and Wascher (1992), Card et al. (1994), Card and Krueger (1995) and took the higher rate as the state minimum wage. 4 The CPI Data that we used is available at ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt. 5 The practice of minimum wages in United States started in early 20th century. However, the federal minimum wage was introduced for the …rst time in 1938 with the Fair Labor Standards Act (FLSA). While many low-wage sectors, such as agriculture, retail trade and services were not initially obliged with paying federal minimum wage, the coverage rate of federal minimum wages has increased steadily overtime, and is fairly stable around 85 percent of all workers since mid-1970s. 6 In 1973-76 only 22 states can be separately identi…ed. 5 et al. (1994) and Burkhauser et al. (2000), and exclude individuals that are younger than 16 years of age, self-employed, unpaid family workers or persons indicating agricultural production and agricultural services as their current or most recent industry. We use the demographic weights in CPS May supplements to generate state-year aggregates. Similarly, as with past studies, we focus on employment and earnings of teenagers, aged 16 to 19. To compute state level employment-population ratios for teenagers (and unemployment rates for males aged 25 to 64) we used the "employment status" variable for the year 1977 to 1988 and the "labor force status" variable for the year 1989 to 2007. The average hourly wages for teenagers aged 16 to 19 have been constructed from usual hourly wages stated in CPS May …les. Finally, following Card et al. (1994), we weight the state-level observations with the fraction of states’population in United States population when we estimate. 3 The Empirical Setting The Standard Cross-State Cross-Year Setting To replicate …ndings from traditional approaches and assess the di¤erences between our approach and previous settings we follow Card’s and Krueger’s (1995) preferred cross-state cross-year employment speci…cation: 0 Est = M Wst + Xst + s + t + "st ; (1) where Est is the employment-to-population ratio among less skilled labor (teenagers) in state s and year t, M Wst is the e¤ective minimum wage in state s and year t, X is a set of state-year control variables, s and t are state and national time e¤ects and "st are idiosyncratic state-year speci…c in‡uences on teenagers’employment. The parameter of interest , is the reduced form long-run e¤ect of minimum wages on the employment rate of teenagers. The minimum wage laws in the United States imply that a worker is entitled to receive the higher of the federal minimum wage and the state minimum wage: M Wst = Fst F M Wt + (1 Fst ) SM Wst ; (2) where SM Wst and F M Wt represent state-speci…c and federal minimum wages in year t respectively and Fst is an indicator that equals to one if federal minimum wage in 6 time t is higher than s state speci…c wage ‡oor: Fst = 1 (F M Wt SM Wst ) : (3) It is a common practice in cross-state cross-year studies to use the variation in state e¤ective minimum wages M Wst to estimate . The impact of minimum wages is identi…ed, implicitly, assuming that adjustments in state-speci…c wage ‡oors are not correlated with state-speci…c shocks to the employment of low-wage (potential) workers.7 But, state adjustments in minimum wages might not be exogenous to ‡uctuations in the demand for less-skilled labor and the unemployment of low-paid (potential) workers. If state minimum wages are a¤ected by the state’s labor market, however, this could bias the results of past research. We next illustrate formally this source of bias, discuss its potential implications and provide an alternative source of variation in state e¤ective minimum wages. Federal Minimum Wages, State Minimum Wage Policy and the Bias in the Traditional Setting For simplicity of illustration, yet without loss of generality, let us decompose the choice of state s to be restricted by federal minimum wages in time t (Fst ) into two components: (i) a time invariant state speci…c "traditional propensity" (Fs ) and (ii) state-year choices (Vst ): Fst = Fs + Vst : (4) By substituting (4) into (2), we re-express minimum wage in state s in time t as linear combination of federal wage policy and state speci…c choices: M Wst = Fs F M Wt + Sst ; (5) where: Sst = (1 Fs ) SM Wst + Vst (F M Wt SM Wst ). The …rst term (Fs F M Wt ) re‡ects the expected impact of federal minimum wage policy on state e¤ective minimum wages. The second term (Sst ) represents state-year speci…c adjustments in minimum wages. Equation (5) portrays the potential bias from 7 Recent studies control for local trends in the employment of low-wage (potential) workers and minimum wages using region-year e¤ects or linear state speci…c time trends (Dube, Lester and Reich, 2010). 7 the use of state e¤ective minimum wages (M Wst ) and o¤ers a useful source of variation to eliminate that bias. The Bias in the Traditional Setting Our primary concern is that state-year choices regarding minimum wages - re‡ected in Sst - are not exogenous to state-speci…c shocks in the employment of low-wage (potential) workers ("st ). In this case the omitted variable formula implies that: OLS = + cov (Sst ; "st ) : var (M Wst ) (6) If state speci…c minimum wages are "procyclical" - that is adjusted when teenagers employment rates are particularly high (cov (Sst ; "st ) > 0) - then the traditional OLS estimates understate the negative impact of minimum wages on employment ( OLS > ). The Main Idea in Brief We use the di¤erential impact of adjustments to the federal minimum wage on the e¤ective minimum wages within states to evaluate the impact of minimum wages on employment. In particular, a rise in the federal minimum wage should have a larger impact on minimum wages in states with lower incomes per capita and in states with higher minimum wage rates. Critically, a state’s choice of its minimum wage, and hence the degree to which federal wage ‡oors bind, is not exogenous. It re‡ects political considerations. We account for both endogenous state-level decisions regarding minimum wage rates and the di¤erential impact of federal wage ‡oors to identify the impact minimum wages rate on the employment decisions of teenagers. The intuition underlying our setting is illustrated in equation (5). Federal adjustments in national wage ‡oors have a larger impact on a state’s e¤ective minimum wage when the state has a greater propensity to be restricted by federal standards Fs F M Wt . We utilize the variation in state e¤ective minimum wages due to federal adjustments in national wage ‡oors - that typically a¤ect wage ‡oors in some states more than others - to identify the impact of minimum wages on employment and illustrate biases in existing studies. 8 The Statistical Model State legislators choose whether to have speci…c wage ‡oors above federal requirements. Let Ust denote a latent index of state legislators "utility" from keeping state minimum wages at the federal standards. The state minimum wage equals the federal standard if and only if the ‘bene…ts’exceed the ‘costs’, which means: 0 Fst = 1 Ust = Zs + ! st 0 ; (7a) where Z is a set of pre-determined time invariant observable factors and ! st are stateyear in‡uences. In this framework Fs - the time invariant propensity of a state to be restricted by federal minimum wages, the "traditional propensity" - is equal to the probability that Fst = 1 conditional on state time invariant observed (by the econometrician) characteristics. We estimate the preferences of state legislators regarding the establishment of a state minimum wage above that set by the federal government. Thus, using preexisting cross-state disparities in measures of income per capita, political preferences and lagged choices (proportion of year that Fst = 1 during far lagged previous years), Fs can be approximated by estimating the probability model in equation (7a) and projecting the following values: 0 Fs = P Zs (7b) ; where P ( ) is the probability function. Employed with Fs we turn to estimate the e¤ect of minimum wages on the employment of low-paid workers (teenagers). We use the di¤erential impacts of federal adjustments in national wage ‡oors (Fs F M Wt ) as the source of variation in state e¤ective minimum wages. Our empirical strategy takes the following form. The employment to population ratio equation follows the preferred speci…cation in Card et al. (1994) and Card and Krueger (1995) for estimating the state-year variations in employment to population ratio for teenagers: 0 Est = M Wst + Xst + t + s + "st : (8a) Practically, we also allow for region-year e¤ects, "F-States" year-e¤ects and statespeci…c long-run changes in the employment of teenagers using pre-post mid of the sample period state e¤ects, which we discuss in detail when we turn to the data. The 9 …rst stage equation exhibits the same structure: 0 M Wst = Fs F M Wt + Xst + s + t + (8b) st ; where the parameter is the elasticity of state e¤ective minimum wages with respect to federal in‡uences on state e¤ective minimum wages (Fs F M Wt ). The reduced-form employment equation is8 : 0 Fs F M Wt + Xst + ~s + ~t + ~"st : Est = (8c) Structural Interpretation Federal adjustments in national wage standards in‡uence di¤erentially state e¤ective minimum wages ( Fs F M Wt ). It is this arguably exogenous source of variation in minimum wages, across state and over time, that we use to estimate the e¤ects of minimum wages on the employment (and wages) of teenagers. The key identifying assumption is that federal adjustments in national wage ‡oors are not particularly biased toward high (or low) Fs states. This is not a trivial assumption. Federal minimum wage policy is exogenous neither to national trends nor to speci…c developments in the employment of low-wage workers. Furthermore, the federal administration pays presumably more attention to employment shocks in the "a¤ected regions", where national wage ‡oors are more likely to be relevant, than to ‡uctuations in the employment of low-wage workers in other regions of the country. We address this concern, however. By modeling Fs to re‡ect cross-state di¤erences in standards of living, political preferences and pass state minimum wage policy, the estimated "traditional propensity" varies within geographic and political regions of the US. The "within regions" variation in Fs permits us to account for "a¤ected regions" biases in federal adjustments of national minimum labor prices. By introducing regionyear e¤ects and di¤erential time e¤ects for states that were always restricted by federal minimum wages (denoted by "F-States"), our setting also allows us to assess the extent that federal adjustment in national wage ‡oors are particularly in‡uenced from ‡uctuations in the employment of low-wage workers in the "a¤ected regions". To the extent that federal adjustments are exogenous to state speci…c shocks within geographic and minimum wages "regions", our TSLS estimator provides a consistent estimate of the e¤ect of minimum wages on the employment of teenagers (or other low-wage workers). 8 Where =( + ), ~s = ( s + s ), ~t = ( t + 10 t) and ~"st = ("st + st ) : Di¤ erential Time E¤ ects To further distinguish between time e¤ects and minimum wage impacts, we take two approaches. First, we allow for time e¤ects to vary by a state’s traditional propensity to be restricted by federal wage ‡oors. Second, we utilize the exact timing around adjustments in federal minimum wages to separate between heterogeneous trends and minimum e¤ects by estimating short run e¤ects. We discuss these conceptually and report the corresponding estimates in section VII. The E¤ ect of Minimum Wages on Wage Rates While the employment status is observed for all teenagers, wages are reported only by those who work. Thus, the change in teenagers’mean wages might re‡ect the impact of minimum wages on the skill composition of low-wage workers rather than the average e¤ect on wages. An intuitive way to account for selection bias is to estimate price e¤ects in the "short run". Intuitively, the employment e¤ect should lag and not lead the price e¤ect. Under this assumption, the contemporaneous e¤ect of a change in minimum wage on the change in mean wages is less likely to re‡ect supply side e¤ects. We discuss this in further detail in the section that introduces the short-run analysis. 4 Federal Minimum Wages, State Speci…c Minimum Wages and E¤ective Minimum Wages Using state and federal minimum wage data, Figure 1 reports, for each of the 51 states, the number of years that state-speci…c minimum wages were higher than federal minimum wages between 1968 and 2007. Over this 40 years period state e¤ective wage ‡oors in 22 states –hereafter the "F-States" - were always equal to federal minimum wages (that is Fst = 1 for all years between 1968 and 2007). Interestingly, Alaska is the only state, among the other 29 states, with self-imposed state-speci…c minimum wages higher than federal ‡oors for all years. Critical for our analysis, pre-existing cross-state disparities in standards of living and political preferences help explain the cross-state di¤erences in the degree to which federal minimum wages determine a state’s e¤ective minimum wage. Using Berry et al.’s (1998) "Government Ideology Index" (hereafter GII) to proxy the ideology of a state’s elected leaders, we …nd that states with higher income per capita and greater taste for liberal ideology in the 1960s were more likely to self-impose speci…c minimum 11 wages higher than federal standards a decade later and onwards. Results are found in Table 1. The population sample includes all states but District of Columbia, for which Berry’s et al. (1998) GII is not available.9 The …rst panel reports coe¢ cients of OLS regressions for the proportion of years that federal minimum wages were higher (or equal) to state speci…c minimum wages, the average Fst , against income per capita (in 1969) and Berry et al.’s (1988) GII average values for the years 1960-1968. Columns (i) and (ii) report estimates for the years 1968-2007 and for the period of interest 1977-2007, respectively. Consistent with arguments by Stigler (1946), we …nd that low income per capita states were more likely to be restricted by federal minimum wages than others. Political preferences matter, too. States with liberal government ideology during the 1960s were more likely to exhibit speci…c wage ‡oors above federal standards than others states. Furthermore, these proxies for pre-existing di¤erences in political preferences and income per capita account for half of the cross-state variation in the average Fst between 1977 and 2007.10 Both income per capita and GII are crude proxies for cross-state disparities in the demand for labor and taste for re-distribution. To proxy latent state speci…c persistent factors we take advantage of the federal and the state minimum wage data prior to 1977. We calculate for each state the proportion of years between 1968 and 1976 that state e¤ective minimum wages were equal to the federal wage ‡oors (denoted with Fs68 76 hereafter). State history matters. The proportion of years between 1968 to 1976 that a state was e¤ectively restricted by federal minimum wages (Fs68 76 ) accounts for most of the cross state variation in states propensity to be restricted by federal wage ‡oors between 1977 to 2007 (as measured by the average Fst during these years). It is worth noticing that while disparities in income per capita in late 1960s have no explanatory power once we account for Fs68 76 , pre-existing political preferences in the 1960s still matter many years later (column iv). The political economy literature has long recognized that di¤erences exist in institutions, ideology, and legislative and policy outcomes (Besley and Case, 2003; Lee, Moretti and Butler, 2004).11 Our …ndings indicate that this is 9 The Berry et al.’s (1998) measure is the average ideology of the governor and the state legislature, where these state politicians’ ideology is inferred from the ADA and COPE scores of their partisan counterparts in the state’s congressional delegation. The index takes zero for most conservative, and 100 for most liberal case. 10 The correlation between the income per capita in 1969 and 1999 is 0:87. The correlation between Berry et al.’s (1998) GII average values for the years 1960 to 1968 and from 1977 to 2006 is 0:66. 11 Besley and Case (2003) …nd that measures of citizen ideology are signi…cantly correlated with 12 also relevant in the context of minimum wages. Whether state s is restricted in time t by federal minimum wages (or not) re‡ects both persistent factors - the "traditional propensity" - and transitory shocks. We approximate states’"traditional propensity" to be restricted by federal minimum wages by estimating the probability model in equation (7a), for the years 1977 to 2007, assuming that the state-year in‡uences (’errors’) are normally distributed (that is, using a Probit model). The dependent variable in all speci…cations is Fst . We use two main speci…cations to proxy state s "traditional propensity" (Fs ). Our benchmark speci…cation contains time invariant variables only. These include income per capita (in 1969), Berry et al.’s (1988) GII average values for the years 1960-1968 and the proportion of years between 1968 to 1976 that state e¤ective minimum wages were equal to the federal wage ‡oors (Fs68 76 ). In our second main speciation, we allow states’"traditional propensity" to vary gradually over time. We use the proportion of years between t 2 and 1968 that state e¤ective minimum wage ‡oors were equal to federal restrictions to proxy state latent factors. Probit marginal e¤ect estimates (dF=dx) are found in the 2nd panel of Table 1. The …rst four speci…cations employ the same set of explanatory variables as in the corresponding columns in panel (A). Column (v) reports the time-varying speci…cation. We …nd a notable persistency in states’ choices on whether to introduce speci…c wage ‡oors higher than federal standards, re‡ecting traditional disparities in political preferences and standards of living. In brief, crude measures of pre-existing political preferences and standards of living account for one quarter of the state-year variation in state-year binary minimum wage status (Fst ) many years later. State choices whether to introduce speci…c wage ‡oors higher than federal standards are highly correlated with past choices. Yet, pre-existing cross-state variation in political preferences, as measured by Berry et al.’s (1988) GII, measured in the 1960s, account for a non-trivial part of the cross-state cross-year disparities, above and beyond past choices. This holds both in the static measure (column iv) or the dynamic moving average measure (column v). Employed with these estimates we use the time invariant model in column (iv), hereafter P 1, and the time varying speci…cation in column (v), hereafter P 2, to project for each state her "traditional propensity" to be restricted by federal minimum wages. The political economy literature recognized the symbiotic relationship between electoral outcomes and the subsequent performance of the economy. Voters’ tastes and state taxes and spending. 13 electoral outcomes are exogenous neither to economic conditions nor to required social policy. Yet, to the extent that pre-existing preferences and time invariant choices are correlated with later choices, these are unlikely to re‡ect future state speci…c shocks to employment. The Impact of Federal Minimum Wages on State E¤ective Minimum Wages Employed with states’projected propensities to be restricted by federal minimum wages (Fs ), we approximate the di¤erential impact of federal minimum wages on state e¤ective minimum wages using the following linear in parameters speci…cation: 0 M Wst = Fs F M Wt + Xst + s + t + 0 (8b ) st ; where M Wst is the e¤ective minimum wage (in logs) in state s and year t. Xst is the same set of state-year control variables included in the employment equation, where s and t are state and national time e¤ects, respectively. Practically, we also allow for region-year e¤ects, di¤erential year e¤ects for the 22 "F-States" and all others, and state-speci…c long-run changes in the employment of teenagers. Intuitively, a rise in the federal minimum wage should be fully re‡ected in states in which federal standards are binding and is expected to have somewhat milder impact on other states. Therefore, we expect the elasticity of state e¤ective minimum wages (M Wst ) with respect to federal adjustments in national wage ‡oors (F M Wt ) to be larger in states where national minimum labor prices are binding (high Fs ) than in other states, that is > 0. 0 Employed with this setting, we turn to the data. We estimate equation (8b ) and it’s between years …rst di¤erence version, using a sample consisting of 50 state-year observations for the years 1977-2007 (excluding the District of Columbia).12 The results are shown in Table 2 in two panels. The dependent variable in the …rst panel is state e¤ective minimum wages (in logs), de‡ated using the Consumer Price Index for Urban Wage Earners and Clerical Workers provided by BLS to 2000 prices. All speci…cations include, in addition to state e¤ects and national time e¤ects, a standard set of state year aggregates commonly used employed in the cross-state crossyear studies to control for factors that a¤ect employment and earning outcomes other than minimum wages (unemployment rate of males aged 25 to 64 and the fraction of 12 The between years speci…cation is: M Wst = Fs F M Wt + 14 0 Xst + t + st : teenagers). The dependent and the explanatory variables in the second panel are the corresponding between year di¤erences. These leave us with 1550 and 1500 observations in the …rst and the second panels, respectively. We estimate four speci…cations that di¤er by the set of state, region and time e¤ects included. Two main facts emerge: First, the reduced form e¤ect of federal minimum wages on state e¤ective wages increases with state projected propensity to be restricted by federal minimum wages. This holds regardless of whether we estimate the e¤ect in levels or …rst di¤erence. The reduced form e¤ect is robust to region-year e¤ects. Second, our main variable of interest, the interaction between states’"traditional propensity" to be restricted by federal wage standards and federal minimum wages in time t (Fs F M Wt ) accounts for much of the variation that is not associated with state and time e¤ects (Figure 2.1). This also holds when we look at the changes in minimum wages. The exact timing of changes in federal minimum wages explains much of the changes in state e¤ective minimum wages (Figure 2.2). The elasticity of state e¤ective minimum wages with respect to federal minimum wages ( ) ranges between 1:1Fs and 0:7Fs when we control for state and national time e¤ects (columns i and v). The e¤ects are somewhat milder when we allow for regional non-parametric time trends (columns ii and vi).13 The "long" and the "short" run estimates, in panels (a) and (b) respectively, are similar in magnitude and statistically indistinguishable, as long as we do not introduce state-speci…c long-run trends. While the short run e¤ects are robust to state-speci…c trends, the long run e¤ects of federal adjustment in national wage ‡oors shrink (columns iii-iv and vii-viii). These results indicate that in explaining the variation of the de-trended state effective minimum wages, the exact timing of federal adjustments matters mainly in the short run. Therefore, to the extent that regional year e¤ects and long-run varying state e¤ects control for other contaminating unobserved factors, the traditional long-run setting is useful. Yet, to further control for state-speci…c time varying factors, we should utilize the short-run setting. The exact timing that federal adjustments in national wage ‡oors in‡uence state e¤ective minimum wages allows sorting out state-speci…c latent factors from the impact of minimum wages on the employment of teenagers. 13 BLS classi…cation of the US to 4 regions. 15 5 Evidence from the Cross State Cross Year Setting State E¤ective Minimum Wages To compare our …ndings with previous studies, we preview our main analysis by estimating the impact of minimum wages on the employment of teenagers using state e¤ective minimum wages. Table 3 reports the employment e¤ects for a sample of 50 state-year observations for the years 1977-2007 (excluding the District of Columbia). The dependent variable is the employment to population ratio in state s and time t for teenagers in 16-19 age group. All speci…cations include a standard set of state year aggregates, commonly used in the cross-state cross-year studies to control for other factors that might a¤ect the employment of teenagers than minimum wages (unemployment rate of males aged 25 to 64 and the fraction of teenagers). We …nd mild negative association between minimum wages and the employment of teenagers. The employment elasticity ranges from -0.24 (evaluated at the mean teenage employment-to-population ratio), controlling for state and national time effects, to approximately 0, when we allow for di¤erential year e¤ects across regions and state-speci…c long-run trends.14 In some detail, the …rst column reports the regression coe¢ cient of employment on state e¤ective minimum wages controlling for state and national time e¤ects. In the second column, we control for local time trends using BLS classi…cation of the US to 4 regions. Controlling for region year e¤ects the regression coe¢ cient drops from -0.10 (column i) to -0.071 (column ii). To further control for local co-movements in the employment of teenagers and minimum wages, we introduce non-linear state-speci…c time trends. Using two sets of state e¤ects for the periods before and after 1992 we allow for di¤erent state-speci…c e¤ects during the …rst 15 years of our sample and the following 15 years (column iii). We …nd no association between state e¤ective minimum wage and the employment rates of teenagers once we allow for state-speci…c long-run time e¤ects. The long-run e¤ect shrinks to -0.008. This result is robust to the inclusion of di¤erential year e¤ects for the 22 "F-States" and all other states. To summarize, we …nd no association between minimum wages and the employment rates of teenagers when we use the cross-state cross-year variation in states’self-determined wage ‡oors. 14 See appendix Table A2 for state average teenage employment-to-population ratios 16 Federal Minimum Wages: Reduced Form E¤ects Do federal adjustments in minimum wages have larger impact on the employment of teenagers in states that federal wage ‡oors are binding than in other states? To address this question, we estimate the reduced form di¤erential e¤ects of federal minimum wages on the employment of teenagers (see equation (8c)). The main variable of interest is the interaction between federal minimum wages (F M Wt ) and a state’s propensity to be restricted by federal wage ‡oors (Fs ). We approximate a state’s "traditional propensity" to be restricted by federal minimum wages using the time invariant (P 1) and the time variant (P 2) measures. Results are found in Table 4. Federal adjustments in national wage ‡oors have larger disemployment e¤ects in states that federal minimum wages are binding than in other states. This holds also when we allow for heterogeneous time trends in the employment of teenagers across geographic regions and between the "F-States" and all other states. For instance, the employment elasticity is approximately 0:5Fs =Es controlling for state e¤ects, national time e¤ects and region year e¤ects (columns i and ii). We already noticed that the long-run elasticity of state minimum wages with respect to federal minimum wages is milder once estimated within periods (Table 2, columns iii and iv). Therefore, it is not surprising to …nd that the employment elasticity is also milder 0:165Fs =Es once we introduce pre-post 1992 state-speci…c e¤ects. These …ndings hold whether we employ the time invariant speci…cation (P 1) or the time varying speci…cation (P 2) to approximate states’propensity to be restricted by federal wage standards. It is worth noticing that, with speci…cations allowing for pre-post 1992 state-speci…c e¤ects, we do …nd that federal adjustments in minimum wages have larger impact on the employment of teenagers in states that federal wage ‡oors are binding than in other states, while we …nd no association between the employment rates of teenagers and state self-determined minimum wages. Instrumental Variables Estimates Next we turn to estimate the "long-run" e¤ect of minimum wages on the employment of teenagers using the di¤erential impact of federal adjustment in minimum wages as the excluded source of variation in state minimum wages. Results are found in Table 5. There are two main panels. The …rst four columns report TSLS estimates using the interaction between federal minimum wages and state propensity to be re- 17 stricted by federal minimum wages approximate using the time-invariant speci…cation (P 1; F1s F M Wt ). The next four columns report estimates using (P 2; F2s F M Wt ) as the excluded variable. All speci…cations include the same standard set of state year aggregates (unemployment rate of males aged 25 to 64 and the fraction of teenagers) as in the OLS models (Table 3 and Table 4). One main fact emerges: We …nd notable negative impact of minimum wages on the employment rate of teenagers. The negative association between the federal in‡uences on state e¤ective minimum wages and the employment of teenagers cannot be attributed to regional trends, "F-States" time varying factors or state-speci…c long run changes in the employment of teenagers. Controlling for region year e¤ects, pre-post 1992 state e¤ects and di¤erential time e¤ects for the "F-State" and all other states the estimated e¤ect ranges between -0.40 and -0.41 with corresponding implicit elasticity of approximately -1. Estimates are remarkably similar whether we use P 1 or P 2 to approximate the di¤erential e¤ect of federal minimum wages on state wage ‡oors (panel (a) and panel (b) respectively). The instrumental variable estimates are in sharp contrast with the traditional estimates using self-determined state-year variation in minimum wages. In some detail, controlling for national time e¤ects and time invariant state e¤ects, the estimated e¤ect ranges between -0.512 to -0.429 (columns i and v respectively). These estimates are 4 times larger than the OLS estimates using same set of controllers (Table 3, -0.106). Estimates are a bit larger (in absolute terms) once we allow for di¤erential regional trends in the employment rates of teenagers (columns ii and vi). Allowing for state-speci…c long-run changes in the employment of teenagers using pre and post 1992 state e¤ects, we …nd milder but yet notable disemployment e¤ects (columns iii and vii). Finally we account for the potential endogeneity of federal adjustments in minimum wages to particular developments in the employment of low paid workers in the states were federal ‡oors matter. In columns (iv) and (viii) we control for latent by year factors for the 22 states and all other states. Allowing for di¤erential time e¤ects the point estimates are a bit (although statically insigni…cantly) larger, pointing out to a mild procyclicality of federal minimum wages with respect to the employment of low paid workers in the states where federal minimum wage policy is mostly relevant. 18 Latent Time E¤ects vs. Minimum Wage Impacts The structural interpretation of the IV estimates rests on the assumption that the only reason that the employment of low-wage workers drops in high “propensity”states more than in other states with federal minimum wage adjustments is the larger impact of federal wage standards on state e¤ective wage ‡oors in those states. To assess whether our …ndings re‡ect factors other than federal in‡uences on state e¤ective minimum wages, we estimate an "unrestricted" TSLS model. This model allows factors other than federal adjustments in national wage ‡oors to in‡uence state e¤ective minimum wages. In this case the …rst stage "unrestricted" equation takes the following form: 0 M Wst = Fs 't + Xst + s + t + (9a) st ; where Fs 't is a vector of interactions between state propensity to be restricted by federal wage ‡oors, Fs , and aggregate year e¤ects 't . Note that the later term ('t ) aggregates all national-year factors, including federal minimum wages, into one by-year term. In the second stage, we run a "horse race" between the federal component in state e¤ective minimum wages (Fs F M Wt ) and all other national factors that might explain, interacted with Fs , state e¤ective minimum wages: Est = ^ M Wst + 0 Fs F M Wt + Xst + s + t + st : (9b) There are two parameters of interest, ^ and . The later ( ) approximates the impact of federal in‡uences on state minimum wages on the employment of teenagers. The parameter ^ measures the extent that national factors other than federal minimum wages drive our previous results. We report our …ndings in Table 6. The table contains 4 panels that vary by the set of latent factors we control for. The …rst column reports the estimated e¤ect of minimum wages on the employment rate of teenagers when state minimum wages are instrumented using the "unrestricted" speci…cation in equation (9a) and the second stage equation does not include the federal in‡uences on state e¤ective minimum wages (does not include Fs F M Wt ). The second column reports the reduced form e¤ect of the federal component in state minimum wages. The third column reports second stage estimates based on the statistical model in equations (9a) and (9b). We …nd negative association between the employment of teenagers and state min19 imum wages when these are instrumented using the unrestricted model. Yet, this re‡ects solely the impact of the federal components in state minimum wages. We …nd no negative association between all other aggregate factors and the employment of teenagers once we account for the direct impact of federal in‡uences on state minimum wages. For instance, the …rst entry in column (i) reports the regression coe¢ cient of state minimum wages, when these are instrumented by the unrestricted model, on employment (-0.192). Allowing for direct di¤erential impact of federal wage ‡oors on the employment of teenagers the employment elasticity drops to zero (-0.001) whereas the estimated equals to -0.525 (se. 0.137). Furthermore, allowing for state-speci…c longrun changes in the employment of teenagers using pre and post 1992 state e¤ects, we …nd no evidence for negative impact of state minimum wages when these are instrumented by the unrestricted model. This holds even in the speci…cations that do not allow for direct di¤erential e¤ect of federal wage ‡oors on the employment of teenagers. To summarize, the "unrestricted" estimates indicate that our benchmark IV estimates re‡ect the di¤erential impact of federal adjustments in minimum wage on state e¤ective wage ‡oors and the e¤ects of these external changes in state e¤ective minimum wages on the employment of teenagers. Reverse Causality Why do our IV estimates di¤er from the zero e¤ect found using state e¤ective minimum wages? Is it possible that state legislators are reluctant to adjust minimum wages when the perceived demand for labor is relatively low? Does the zero e¤ect of minimum wages on the employment of teenagers re‡ect the procyclicality of state minimum wage policy? To address these questions, we approximate a naïve reverse causality model by estimating the following reduced form minimum wage speci…cation: M Wst = 1 Us;t 1 + 2 Fs Us;t 1 0 + Xst + 't + 's + st ; (10) where the variable Us;t 1 is the state speci…c aggregate unemployment rate during the previous year. The parameter 1 measures the association between state-speci…c unemployment rate and e¤ective minimum wages in the following year in states that "typically" were not restricted by federal wage standards. The overall association between lagged state-speci…c unemployment rate and state e¤ective minimum wages is allowed to vary linearly by Fs ; ( 1 + 2 Fs ). 20 The idea is simple: If state self-determined minimum wages are procyclical, we should …nd that: 1 < 0: Furthermore, if state e¤ective minimum wages are only procyclical in states that are not often restricted by federal standards, then we also should …nd that: 2 > 0: Employed with these intuitive testable implications, we turn to the state-year data. Results are shown in Table 7. We approximate the excess demand for labor using (i) state overall unemployment rate and (ii) the unemployment rate among prime aged males (between 25 and 64 years of age). We …nd that state e¤ective minimum wages are procyclical. Yet, this holds only for high income per capita "liberal" states where state-speci…c minimum wages are traditionally higher than federal wage ‡oors. The elasticity of state minimum wages with respect to last year unemployment rate, evaluated at Fs = 0, that is 1 , ranges between 4:5 to 2:8, depending on whether we use the static or the time varying speci…cation to approximate Fs . Yet, the procyclicality of state e¤ective minimum wages with respect to last year unemployment rate is inversely related to Fs . We …nd that 2 ranges between 5:1 and 3:1 at same order of magnitude (in absolute terms) as 1 . Thus the overall e¤ect is practically zero for states that were traditionally restricted by the federal minimum wage policy. These …ndings are consistent with the interpretation that self-determined minimum wages are procyclical. States adjust minimum wages in booms and are reluctant to update wage ‡oors in busts. Therefore the use of state e¤ective wages understates the causal impact of minimum wages on the employment of teenagers. 6 The Short-Run E¤ects of Minimum Wages on Employment and Wage Rates Changes in employment and wages around the actual times of adjustments in minimum wages allow us to separate further between local time-varying factors and the impact of minimum wage on employment and wages. We utilize the adjustments in federal and in state-speci…c minimum wages between 1977 and 2007 to estimate short-run e¤ects 21 around the timing of changes in minimum wages. The Statistical Model Following Card and Krueger (1995) preferred speci…cation for the long-run e¤ect the benchmark reduced form, the short-run employment and wage equations take the following form: Est = Wst = E W M Wst + M Wst + 0 Xst 0 Xst E E t + W + W t + + "E st ; (11a) "W st : The parameters E and W represent the short-run e¤ects of minimum wages on the employment and wage rates of low-wage workers, respectively. The …rst stage equation in this setting takes the following form: 0 M Wst = Fs F M Wt + Xst + t + (11b) st ; where is the short-run elasticity of state e¤ective minimum with respect to federal minimum wage in‡uences on state e¤ective minimum wages.15 The reduced-form equations for the between years changes in employment and wages are: Est = Wst = E W 0 Fs F M Wt + Xst Fs F M Wt + 0 Xst E + W + E W E + ~t + ~"E st ; W + ~ + ~"W ; t (11c) st where ~t stand for the average changes in employment and wages.16 The parameters E and W measure the short-run reduced form e¤ect of changes in federal minimum wages on teenagers’employment and wages, depending on its expected e¤ects on state e¤ective wage ‡oor (Fs ). Practically, we also allow for geographic region-year e¤ects, di¤erential time e¤ects for the 22 "F-State" and all other states as well as state …xed e¤ects, linear state-speci…c trends and pre-post 1992 state e¤ects. 15 It is worth noticing that we obtain similar estimates using either nominal or CPI adjusted federal and state e¤ective minimum wages. See appendix Table A.3. E E E E W W W 16 ~E E ~W = = "E "E and ~"W t t + t , ~ st = st + st , t t + t st = "W st + W W st . 22 State E¤ective Minimum Wages We preview our main analysis with a set of estimates using the actual changes in state e¤ective minimum wages as the RHS variable. Table 8 reports the employment and wage e¤ects for a sample 50 state-year observations for the years 1978-2007 (excluding the District of Columbia). We preview our main analysis with a set of estimates using the actual changes in state e¤ective minimum wages as the RHS variable. Table 8 reports the employment and wage e¤ects for a sample 50 state-year observations for the years 1978-2007 (excluding the District of Columbia). The dependent variables in the …rst and the second panels are the changes in (i) the employment to population ratio and (ii) the average hourly wages (in logs) of teenagers aged 16 to 19 in state s during the past year.17 All speci…cation include the changes in the unemployment rate of males aged 25 to 64 and changes in the proportion of teenagers, the standard set of state-year aggregates. Since the e¤ect of adjustments in minimum wages on employment might be re‡ected with some lag we estimate each speci…cation twice: …rst using (i) the current change in minimum wages and then using (ii) the lagged change in state e¤ective minimum wages. Using changes in state e¤ective minimum wages we …nd no evidence for wage or disemployment e¤ects. Federal Minimum Wages: Reduced Form E¤ects Next we turn to our main analysis using the short-run setting. Table 9a and Table 9b report the reduced form di¤erential impacts of changes in federal minimum wages on the employment and wages of teenagers, respectively. We estimate four speci…cations that vary by the set of latent factors we control for. Each speci…cation has been estimated twice using the current and the lagged change in federal minimum wages. Adjustments in federal minimum wages have a larger impact on teenage wages in states that national wage standards are traditionally binding than in low FS states, that is W > 0 and corresponding disemployment e¤ect in the following year, that is E < 0. In some detail, our preferred speci…cations controlling for year e¤ects, region year e¤ects, state e¤ects and pre-post 1992 state e¤ects (columns vii and viii) show that the short-run reduced form e¤ect of changes in federal minimum wages on teenagers’ employment ranges between -0.457 (se. 0.162) and -0.208 (se. 0.074) whereas the 17 The changes in minimum wages, employment to population ratios and mean hourly wages over the past year are measured using the May of each data. 23 corresponding contemporaneous e¤ects range between 0.013 (se. 0.283) and -0.110 (se. 0.191). These results do not re‡ect heterogeneous trends in the employment of teenagers. The point estimates are in fact larger (in absolute terms), when we allow changes in the employment rates of teenagers to vary di¤erently by year, across geographic regions and between the 22 "F-States" and all the other states. The disemployment e¤ect cannot be either attributed to state-speci…c trends in the employment of teenagers. The point estimates are approximately two times larger when we allow, in addition to state-speci…c linear trends (column iv), for state-speci…c di¤erential pre-post 1992 trends (columns vii and viii). The estimated short-run wage e¤ects in Table 9b are consistent with the employment e¤ects above. That is, we …nd large positive contemporaneous e¤ects on wages. In our preferred speci…cations the e¤ect ranges between 0.964 (se. 0.411) to 0.666 (se. 0.356) using P1 and P2 to approximate state propensity to be restricted by federal minimum wage standards. Consistent with the structural interpretation, we …nd no lagged e¤ects on wage rates. To summarize, we …nd that changes in minimum wages due to federal adjustments in national wage ‡oors have notable impacts on the employment and wages of teenagers. The e¤ect on pays is re‡ected immediately, while the employment e¤ects are noted a year later. Short Run E¤ects: Instrumental Variables Estimates Finally, we turn to estimate the e¤ect of minimum wage on teenage employment and wages. Results are presented in Tables 10a and 10b, respectively. We employ two sources of variation in state e¤ective minimum wages. In the …rst panel (i.e. OLS), we use the actual changes in state e¤ective minimum wages. In the second panel (i.e. TSLS), we utilize only the projected in‡uence of federal adjustments in national wage ‡oors on state e¤ective minimum wages. All speci…cations include a standard set of state year changes in the state-speci…c unemployment rates (males aged 25 to 64) and the proportion of teenagers. Employment We …nd no evidence for disemployment e¤ects of minimum wages on teenagers when we use changes in state e¤ective minimum wages. In fact we …nd, consistent with previous studies (Card 1992a,b), mild positive, yet statistically insigni…cant association between the change in the employment of teenagers and the lagged changes in state e¤ective 24 wage ‡oors (0.065, (se. 0.066)). In contrast, we …nd notable disemployment e¤ects when we use changes in federal in‡uences on state minimum wages to instrument changes in state e¤ective wage ‡oors. The short-run minimum wage e¤ects range between -0.508 (se. 0.236) to -0.314 (se. 0.130) in our preferred speci…cations (columns v and viii). The short-run implicit elasticity of teenage employment with respect to minimum wage (evaluated at the sample mean) ranges between -0.75 and -1.20. These results cannot be attributed to state trends in the employment of teenagers or to spatial heterogeneities in employment trends that are unrelated to minimum wage policies. Point estimates are larger when we allow for year e¤ects to vary by geographic regions and "F-States" as well as state-speci…c trends in the employment of teenagers. For instance, controlling for national and regional time e¤ects, the point estimate is -0.362. Allowing for state-speci…c trends and di¤erential changes in the employment of teenagers for "F-States" and all other states the point estimate is 0.508. While di¤erences are not statistically signi…cant, these results indicate that our negative estimates are robust to latent time-varying state-speci…c factors. Wages We …nd a notable contemporaneous impact of minimum wages on the wage rate of teenage workers. The elasticity of mean wages with respect to minimum wages is approximately 0:9, somewhat higher than the long-run estimates reported in Card, Katz and Krueger (1994). These results cannot be attributed to state trends in teenage wages or to spatial heterogeneities in pay that are unrelated to minimum wage policies. Point estimates are robust to di¤erential time e¤ects between geographic regions, "FStates" year e¤ects and state-speci…c trends in the wages of teenage workers. 7 Alternative Treatments: Card’s (1992) Fraction of A¤ected Workers A rise in the federal minimum wage should have a larger impact on e¤ective minimum wages in states with traditionally lower income per capita and perhaps less of a taste for re-distribution, where federal wage standards are more likely to be binding. A common adjustment in minimum wages might also a¤ect larger fraction of workers in some states than other states depending on the distribution of wages. Card (1992a) utilized the later "treatment" to identify, indirectly, the impact of minimum wages on teenage employment and wages. Using the federal minimum wage increase in April 1990 25 and the cross states variation in the proportion of teenagers reporting hourly wages between 1989’s federal minimum wage ($3.35) and April 1990’s federal minimum wage ($3.79) in 1989 - the "fraction a¤ected" - Card estimated, indirectly, the impact of minimum wages on teenagers’employment and earnings. Card found that the uniform rise in federal minimum wage had a larger impact on teenagers’wages in states where the fraction of teenage workers initially earning less than the new federal wage ‡oor was higher. Nevertheless, Card found no evidence for any corresponding losses in teenage employment. While both designs treat changes in federal minimum wages as exogenous to statespeci…c shocks in the demand (and supply) for low-wage workers, these settings di¤er conceptually as for the source of variation across-states. The con‡icting …ndings, at least as for the impact of minimum wages on the employment of teenagers, require a closer look at the implicit identifying assumptions, in both methods, and the potential biases. We begin this section by estimating the impact of fraction a¤ected on employment and wage rates in our 1977-2007 May sample. The Fraction A¤ected Following Card (1992a), we approximate the proportion of teenage workers earning less than the new federal minimum wage standard using the distribution of actual wage rates in the previous year.18 We calculate both the fraction a¤ected using both the nominal and the CPI adjusted federal minimum wages. We start by estimating the impact of the fraction of workers earning less than the new, due to adjustments in federal minimum wages, on the employment and wage rates of teenagers. We follow Card (1992a) and use nominal terms.19 Results are found in Table 11. We …nd that a 1 percentage point increase in the fraction of teenage workers a¤ected is associated with approximately a 20 percentage points increase in teenage workers’mean hourly wages, which is in the order of the magnitude reported by Card (1992a). Furthermore, similar to Card (1992a), we …nd no evidence of corresponding losses in teenage employment.20 These results hold controlling for regional time e¤ects, state linear trends, and pre-post 1992 state-speci…c e¤ects in the changes of teenagers’ 18 The correlation between the fraction of a¤ected workers measured using the May data and the 9 months averages as used in Card(1992) for the year 1989, is 0.69. 19 Estimates are robust to the use of CPI adjusted minimum wages and the corresponding fraction of workers a¤ected. 20 In fact we …nd the contemporaneous association between the change in fraction a¤ected and the change in teenagers’employment rate to be positive. 26 employment and wage rates, in addition to national time e¤ects and state e¤ects. Thus, the within states variation in the fraction a¤ected reveals similar …ndings as those obtained from the cross-section variation employed by Card (1992a). Why do the same adjustments in federal minimum wages generate con‡icting reduced form employment e¤ects? The key conceptual di¤erence between Card’s (1992a) approach and our setting, in this context, is with respect to the use of recent labor market outcomes to instrument treatment. The choice of a state to impose statespeci…c wage ‡oors above federal standards is not exogenous to state-speci…c shocks in the demand (and supply) for less skilled workers. We address this concern by using pre-existing cross-state disparities in measures of income per capita and political preferences, which are not subject to local shocks in latent labor demand or supply factors to approximate di¤erential impacts of a uniform adjustment in federal minimum wages. Card (1992a) takes advantage of the most recent distribution of wages to approximate the fraction of workers a¤ected, which is subject to a similar concern. The fraction of a¤ected workers is exogenous ‡uctuations in local labor markets and state-speci…c adjustments in minimum wage policy. To assess the empirical relevancy of this concern we regress the treatment variables the fraction a¤ected and the projected in‡uences of the adjustments in federal minimum wages on state e¤ective wage ‡oors - on lagged labor market outcomes. Findings are found in Table 12. Two main facts emerge. First, we …nd no evidence that adjustments in statespeci…c minimum wage policy or local labor market conditions are correlated with the projected in‡uences of the adjustments in federal minimum wages on state e¤ective wage ‡oors. Second, it does not hold with respect to the proportion of teenage workers who earn less than the new federal minimum wage (and more than the old standard). We …nd that the proportion of teenage workers a¤ected is procyclical. The fraction a¤ected increases following a drop in state-speci…c unemployment rate. As expected the proportion a¤ected is smaller when states impose speci…c wage ‡oors higher than federal standards and the proportion drops following a rise in mean wages. These results hold controlling for regional time e¤ects and state e¤ects. These also hold when we allow for state-speci…c time trends. Hence, while the adjustments in federal minimum wages are apparently exogenous to recent developments in local labor markets, the fraction a¤ected is not. The evidence above indicate that the proportion of workers who earn less than the new federal wage standard is also a¤ected by state-speci…c shocks to the demand (and supply) for labor 27 which might a¤ect the employment and wage rates of teenagers via other channels. A Naive Horse Race Finally, we re-estimate the reduced form impacts of fraction a¤ected and federal in‡uences on state minimum wages on the employment and wage rates of teenagers. Since recent outcomes seem to matter, we control for lagged outcomes and extend the reduced form statistical models to include a dynamic structure of employment and wage rates changes. The …rst column in each outcome panel reports the regression coe¢ cient of employment (or mean hourly wage, in logs) on the proportion of teenage workers who earn between the old and the new federal minimum wage according to the wage distribution in the previous year. The second speci…cation includes the corresponding lagged outcomes. In the third column we introduce the federal in‡uences on state e¤ective minimum wage change. Results are found in Table 13. Controlling for lagged dependent variables, there is no evidence of a signi…cant wage e¤ect of adjustment in federal minimum wage, approximated indirectly, by the fraction of teenage workers a¤ected. In contrast, we …nd that federal in‡uences on state e¤ective matter. A 10 percent increase in federal minimum wages raises hourly wages of teenage workers by a similar magnitude in states that federal standards are traditionally biding and reduces the employment of teenagers by approximately 5 percentage points in the following year. These results cannot be attributed to contemporaneous aggregate employment changes neither to region-year latent shock nor to state-speci…c trends in the employment and wage rates changes. 8 Conclusions The idea of administered wages is ancient. Yet, the controversy is fresh. Following the in‡uential work of Card and Krueger (summarized in their 1995 book Myth and Measurement: The New Economics of the Minimum Wage), a large body of empirical studies report con‡icting evidence regarding the disemployment e¤ects of increases in minimum wages. The modern minimum-wage literature uses state-e¤ective minimum wages to evaluate employment and earnings e¤ects. Card’s and Krueger’s (1994) in‡uential case study of the fast-food industry in New Jersey and Pennsylvania o¤ered a novel setting to account for latent shocks in local labor markets. State borders that cut across labor markets were employed to account for latent local shocks, where they limited their 28 analyses to particular low-wage service industries (fast-food industry; Dube, Lester, and Reich, 2010). Rather than focusing on a particular industry, we o¤er a new approach to identify the employment and wage e¤ects of minimum wages in a cross-state setting. We use adjustments in federal minimum wages - that a¤ect e¤ective nominal wage ‡oors in some states more than others - to identify the impact of minimum wages on employment and uncover biases in past research. We are not the …rst to build on Stigler’s (1946) observation that a uniform national minimum wage ‡oor is implicitly more restrictive in states with lower average wages. Yet, we are the …rst to recognize that a uniform adjustment in federal minimum wages impacts di¤erentially state e¤ective minimum wages, which we exploit to identify an external source of variation in state e¤ective wage ‡oors. Furthermore, we do not take the pre-existing state minimum wage rate as exogenous when the federal government changes the federal minimum. Rather we use persistent cross-state disparities in standards of living and political preferences, that accounts for much of the cross state variation in state minimum wage policy, to instrument the impact of federal adjustments in national wage ‡oors on state e¤ective minimum wages and assess its impact on earnings and employment. From the evaluation perspective, accounting for the endogenous determination of e¤ective minimum wages at the state level turns out to be materially important for drawing accurate inferences about the impact of labor ‡oor prices on the employment prospects of low-paid workers. Using federal and state minimum wage data from 1968 and labor market outcomes at the state-year level from 1977 we estimate the causal impact of minimum wage on teenagers’ employment and wage rates. Consistent with previous studies we …nd mild wage e¤ects and no evidence for corresponding disemployment e¤ects using the actual state e¤ective minimum wages. This holds in the long-run and the short-run. In contrast, we …nd notable wage e¤ects and corresponding disemployment e¤ects when we use the di¤erential impacts of adjustments in federal minimum wages as the external source of variation in state e¤ective minimum wages ‡oors. The long-run elasticity of employment with respect to minimum wages is approximately 1. Estimates are robust to regional-year e¤ects and state long-run trends and most importunately di¤erential time e¤ects for states that were always restricted by federal minimum wages (in addition to national time e¤ects and state …xed e¤ects). The di¤erence between OLS and IV estimates re‡ects the procyclicality of state e¤ective minimum wages in traditional liberal states with high income per capita that typically were not restricted by federal 29 wage standards. Using the exact timing around adjustments in minimum wages, we estimate short-run e¤ects. Consistent with the long-run estimates we …nd no evidence for employment e¤ects in response to changes in state e¤ective minimum wages. Yet, we …nd that a rise in minimum wage have an instantaneous impact on wage rates and a corresponding negative impact on employment. Thus, minimum wages matter. Minimum wage increases boost teenage wage rates and reduce teenage employment. But, evaluating the welfare implications is beyond the scope of this paper. 30 References [1] Berry, William D., Evan J. Ringquist, Richard C. Fording, and Russell L. Hanson, "Measuring Citizen and Government Ideology in the American States, 1960–93," American Journal of Political Science, 42 (1998), 327–348. [2] Besley, Timothy and Anne Case, "Political Institutions and Policy Choices: Evidence from the United States," Journal of Economic Literature, 41 (2003), 7-73. [3] Besley, Timothy, "Joseph Schumpeter Lecture: Paying Politicians: Theory and Evidence," Journal of the European Economic Association, 2 (2004), 193-215. [4] Brown, Charles, "Minimum Wages, Employment, and the Distribution of Income," in Handbook of Labor Economics, Vol. 3B (New York: Elsevier Science, 1999), 2101-2163. [5] Brown, Charles, Curtis Gilroy, and Andrew Kohen, "The E¤ect of the Minimum Wage on Employment and Unemployment," Journal of Economic Literature, 20 (1992), 487-528. [6] Burkhauser, Richard V., Kenneth A. Couch, and David C. Wittenburg, "A Reassessment of the New Economics of the Minimum Wage Literature with Monthly Data from the Current Population Survey," Journal of Labor Economics, 18, 4 (2000), 653-680. [7] Card, David, "Using Regional Variation in Wages to Measure the E¤ects of the Federal Minimum Wage," Industrial and Labor Relations Review, 46 (1992a) 22– 37. [8] Card, David, "Do Minimum Wages Reduce Employment? A Case Study of California, 1987–89," Industrial and Labor Relations Review, 46 (1992b) 38–54. [9] Card, David, Lawrence F. Katz and Alan B. Krueger, "Comment on David Neumark and William Wascher, ’Employment E¤ects of Minimum and Subminimum Wages: Panel Data on State Minimum Wage Laws’", Industrial and Labor Relations Review, 47 (1994), 497-512. [10] Card, David, and Alan B. Krueger, "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania," American Economic Review, 84 (1994), 772–793. 31 [11] Card, David and Alan B. Krueger, Myth and Measurement: The New Economics of the Minimum Wage. Princeton, N.J.: PrInceton University Press, 1995, 422 pp. [12] Deere, Donald, Kevin M. Murphy and Finis Welch, "Employment and the 1990– 1991 Minimum-Wage Hike," American Economic Review Papers and Proceedings, 85 (1995), 232–237. [13] Dickens, Richard, Stephen Machin, and Alan Manning, "The E¤ects of Minimum Wages on Employment: Theory and Evidence from Britain," Journal of Labor Economics, 17 (1999), 1-22. [14] Dube, Arindrajit, T. William Lester and Michael Reich, "Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties," The Review of Economics and Statistics, 92 (2010), 945-964. [15] Katz, Lawrence and Alan Krueger, "The E¤ect of the Minimum Wage on the Fast-Food Industry," Industrial and Labor Relations Review, 46 (1992), 6-21. [16] Lee, David, "Wage Inequality in the United States During the 1980s: Rising Dispersion or Falling Minimum Wage?," Quarterly Journal of Economics, 114(1999), 977-1023. [17] Lee, David, Enrico Moretti and Matthew J. Butler, "Do Voters A¤ect or Elect Policies? Evidence from the U.S. House?," Quarterly Journal of Economics, 119 (2004), 807-859. [18] Machin, Stephen, Alan Manning and Lupin Rahman, "Where the Minimum Wage Bites Hard: Introduction of Minimum Wages to a Low Wage Sector," Journal of the European Economic Association, 1 (2003), 154-180. [19] Machin, Stephen and Alan Manning, "The e¤ects of minimum wages on wage dispersion and employment: Evidence from the U.K. Wages Councils," Industrial and Labor Relations Review, 47 (1994), 319-329. [20] Neumark, David and William Wascher, "Employment E¤ects of Minimum and Subminimum Wages: Panel Data on State Minimum Wage Laws," Industrial and Labor Relations Review, 46 (1992), 55-81. 32 [21] Neumark, David and William Wascher, "Minimum Wage E¤ects on Employment and School Enrollment," Journal of Business & Economic Statistics, 13(1995), 199-206. [22] Neumark, David and William Wascher, "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania: Comment," American Economic Review, 90 (2000), 1362-1396. [23] Neumark, David and William L. Wascher, Minimum Wages (Cambridge, Massachusetts: The MIT Press, 2008). [24] Stigler, George J. "The Economics of Minimum Wage Legislation," American Economic Review, 36 (1946), 358-65. 33 Alabama Georgia Idaho Indiana Kansas Kentucky Lousiana Maryland Mississippi Missouri Nebraska New Mexico North Dakota Ohio Oklahoma South Carolina South Dakota Tennessee Texas Utah Virginia Wyoming Arizona Arkansas Colorado Michigan Montana Nevada North Carolina West Virginia Florida Pennsylvania Wisconsin Ilinois Minnesota New Hampshire Iowa New York Delaware New Jersey Maine Washington Massachusetts Vermont Oregon Rhode Island California Hawai Connecticutt D.C. Alaska 40 Figure 1: Number of Years Between In Which State‐Specific Minimum Wage Was Higher then Federal Minimum Wage (May of Each Year, 1968‐2007 Period) 35 30 25 20 15 10 5 0 Figure 2: State Effective Minimum Wages Depending on Federal Minimum Wages, 1977-2007 2.1: Levels 2.2: Changes Table 1 The Propensity of Federal Minimum Wage to be Equal or Higher than the State Specific Minimum Wage, 1968-2007 OLS and Probit (dF/dX) Estimates Variables of Interest (i) (ii) (iii) 1968-07 (iv) (v) 1977-07 Panel A: Proportion of Years between 1968-07 and 1977-07 with Federal MW >= State MW Government Liberalism Index for the Years 1960-68 (Berry et al., 1998) -0.425*** (0.121) -0.446*** (0.128) -0.297** (0.118) -- Income per Capita, 1969 (BLS, 1970, Census) -0.174*** (0.057) -0.156** (0.060) -0.057 (0.058) -- 0.642*** (0.086) 0.425*** (0.106) -- Proportion of Years with Federal MW>= State MW between 1968 and 1976 R-square Observations 0.536 0.497 0.539 0.626 -- 50 50 50 50 -- Panel B: The Probability that Federal MW >= State MW, Yearly, 1968-07 and 1977-07 Government Liberalism Index for the Years 1960-68 (Berry et al., 1998) -0.321*** (0.107) -0.407*** (0.150) -0.389*** (0.129) -0.240*** (0.093) Income per Capita, 1969 (BLS, 1970, Census) -0.158*** (0.048) -0.165*** (0.059) -0.079 (0.062) -0.028 (0.039) 0.454*** (0.075) Proportion of Years with Federal MW>= State MW between 1968 and 1976 0.334** (0.155) 0.871*** (0.289) Proportion of Years with Federal MW>= State MW between 1968 and t-2 R-square 0.251 0.254 0.179 0.298 0.425 Observations 2000 1550 1550 1550 1550 Notes: Sample consists of 50 state level observations in Panel A and 50‐state‐year observations for the years 1968‐2007 (excluding the District of Columbia). The dependent variable in Column 1 (Columns 2‐4) of Panel A is the proportion of years between 1968 and 2007 (1977 and 2007) the state minimum wage was equal to federal minimum wage. The dependent variable in Panel B is the binary variable, equal to 1 if the Federal MW is above the state MW and zero otherwise. The data on the income per capita in 1969 is taken from U.S. Census Bureau, Historical Income Tables for States. "1960‐68 Average of the Government Ideology index by Berry et al (1998)" refers to average degree of states' liberalism using annual data for 1960‐68 period provided by Berry et al (1998). It ranges between 0 and 1 with higher values indicating a higher degree of liberalism in a state. The index is available for 50 states, and is not available for District of Columbia. (***), (**) and (*) denote significance at 1%, 5% and 10%, respectively. Table 2 Regression Models for State Effective Minimum Wages Depending on Federal Minimum Wages, 1977-2007 OLS Estimates; The Probability that Federal MW is Equal or Higher than State Specific MW, Projected by: Variables of Interest P1:Income per Capita 1969, Berry et al. GI Index 1960-68 and the Proportion of Years that FMW>=SMW between 1968 and 1976 (i) (ii) (iii) (iv) P2: Income per Capita 1969, GI Index 1960-68 and the Proportion of Years that FMW>=SMW since 1968 to Two Years Ago (v) (vi) (vii) (viii) Panel A: Minimum Wage Levels (in logs) State Propensity to be Restricted by Federal MW * Federal Minimum Wage (in logs) 1.028*** (0.092) 0.706*** (0.189) 0.485*** (0.111) 0.399*** (0.123) 0.697*** (0.061) 0.533*** (0.089) 0.336*** (0.076) 0.283*** (0.079) Year Fixed Effects State Fixed Effects Region-Year Effects Post 1992 State Effects Differential Year Effects For States Always Restricted By Federal MW Yes Yes No No No Yes Yes Yes No No Yes Yes Yes Yes No Yes Yes Yes Yes Yes Yes Yes No No No Yes Yes Yes No No Yes Yes Yes Yes No Yes Yes Yes Yes Yes Observations 1550 1550 1550 1550 1550 1550 1550 1550 1.108*** (0.093) 0.856*** (0.173) 0.857*** (0.176) 0.799*** (0.190) 0.749*** (0.071) 0.706*** (0.115) 0.729*** (0.119) 0.702*** (0.122) Year Fixed Effects State Fixed Effects Region-Year Effects Post 1992 State Effects Differential Year Effects For States Always Restricted By Federal MW Yes No No No No Yes Yes Yes No No Yes Yes Yes Yes No Yes Yes Yes Yes Yes Yes No No No No Yes Yes Yes No No Yes Yes Yes Yes No Yes Yes Yes Yes Yes Observations 1500 1500 1500 1500 1500 1500 1500 1500 Panel B: Changes in Minimum Wage State Propensity to be Restricted by Federal MW * Change in Federal Minimum Wage (in logs) Notes: Sample consists of 50 state-year observations for the years 1977-2007 (excluding the District of Columbia). The dependent variable in Panels A and B are the level of state effective minimum wages (in logs) and the change in state effective minimum wage, respectively. The state effective minimum wage is the maximum of the state and federal minimum wages for the state and year (in logs). We use national CPI to 2000$ to deflate federal and state effective minimum wages. All specification control for unemployment rate of males aged 25 to 64 and the fraction of teenagers in the corresponding age calculated using in May CPS survey week. There are 22 states with minimum wages equal to federal minimum wages for all years between 1968 and 2007. See Figure 1. All specifications are weighted by the fraction of state's population in US population in each year, taken from the BLS. Robust standard errors clustered by state of residence during the survey week are in parentheses. (***), (**) and (*) denote significance at 1%, 5% and 10%, respectively. Table 3 Regression Models for State-Level Teenage Employment Rates, 1977-2007 OLS Estimates Variables of Interest (i) (ii) (iii) (iv) State Effective Minimum Wage (in logs) -0.106*** (0.037) -0.071** (0.029) -0.008 (0.028) -0.006 (0.031) Unemployment Rates of Males Aged 25 to 64 -0.930*** (0.136) -0.809*** (0.130) -0.648*** (0.114) -0.655*** (0.126) Proportion of Individuals Aged 16 to 19 in State's Population -0.315 (0.315) -0.132 (0.236) -0.080 (0.207) -0.069 (0.217) Year Fixed Effects State Fixed Effects Region-Year Effects Post 1992 State Effects Differential Year Effects For States Always Restricted By Yes Yes No No No Yes Yes Yes No No Yes Yes Yes Yes No Yes Yes Yes Yes Yes Observations 1550 1550 1550 1550 R-Squared 0.716 0.754 0.784 0.789 Controlling for: Notes: Sample consists of 50 state-year observations for the years 1977-2007 (excluding the District of Columbia). The dependent variable is the employment-to-population ratio for teenagers aged 16-19 in the May survey week. The state effective minimum wage is the maximum of the state and the federal minimum wages for the state and year (in logs). We use national CPI to 2000$ to deflate federal and state effective minimum wages. There are 22 states with minimum wages equal to federal minimum wages for all years between 1968 and 2007. See Figure 1. Unemployment rate of males aged 25 to 64 and the fraction of teenagers in the corresponding age calculated using in May CPS survey week. All specifications are weighted by the fraction of state's population in US population in each year, taken from the BLS. Robust standard errors clustered by state of residence during the survey week are in parentheses. (***), (**) and (*) denote significance at 1%, 5% and 10%, respectively. Table 4 Reduced Form Regression Models for the Differential Effect of Federal Minimum Wage on State-Level Teenage Employment Rates, 1977-2007 OLS Estimates; Variables of Interest (i) (ii) (iii) (iv) Panel A: Using P1 to approximate state propensity that FMWt>=SMWt Ps1 * Federal Minimum Wage (in logs) -0.526*** (0.132) -0.463*** (0.073) -0.165** (0.064) -0.165** (0.064) Unemployment Rates of Males Aged 25 to 64 -0.949*** (0.134) -0.799*** (0.125) -0.660*** (0.114) -0.660*** (0.114) -0.203 (0.223) -0.063 (0.236) -0.058 (0.208) -0.058 (0.208) Proportion of Individuals Aged 16 to 19 in State's Population Panel B: Using P2 to approximate state propensity that FMWt>=SMWt Ps2 * Federal Minimum Wage (in logs) -0.299*** (0.052) -0.271*** (0.051) -0.114** (0.055) -0.113** (0.055) Unemployment Rates of Males Aged 25 to 64 -0.952*** (0.134) -0.794*** (0.124) -0.671*** (0.114) -0.676*** (0.125) Proportion of Individuals Aged 16 to 19 in State's Population -0.138 (0.214) -0.018 (0.234) -0.036 (0.207) -0.018 (0.217) Ps2 0.477*** (0.090) 0.436*** (0.112) 0.152 (0.126) 0.147 (0.128) Year Fixed Effects State Fixed Effects Region-Year Effects Post 1992 State Effects Differential Year Effects For States Always Restricted By Federal MW Yes Yes No No No Yes Yes Yes No No Yes Yes Yes Yes No Yes Yes Yes Yes Yes Observations 1550 1550 1550 1550 R-Squared 0.716 0.754 0.784 0.789 Controlling for: Notes: Sample consists of 50 state-year observations for the years 1977-2007 (excluding the District of Columbia). The dependent variable is the employment-to-population ratio for teenagers aged 16-19 in the May survey week. The state effective minimum wage is the maximum of the state and federal minimum wages for the state and year (in logs), deflated using national CPI to 2000$. Unemployment rate of males aged 25 to 64 and the fraction of teenagers in the corresponding age calculated using in May CPS survey week. There are 22 states with minimum wages equal to federal minimum wages for all years between 1968 and 2007. See Figure 1. All specifications are weighted by the fraction of state's population in US population in each year, taken from the BLS. Robust standard errors clustered by state of residence during the survey week are in parentheses. (***), (**) and (*) denote significance at 1%, 5% and 10%, respectively. Table 5 Instrumental Variables Regression Models for State-Level Teenage Employment Rates, 19772007 TSLS Estimates; P1: Income per Capita 1969, Berry et al. GI Index 1960-68 and the Proportion of Years that FMW>=SMW between 1968 and 1976 Variables of Interest (i) (ii) (iii) (iv) P2: Income per Capita 1969, GI Index 1960-68 and the Proportion of Years that FMW>=SMW since 1968 to Two Years Ago (v) (vi) (vii) (viii) Panel A: 2nd stage State Effective Minimum Wage (in logs) -0.512*** -0.656*** -0.339** -0.410** (0.148) (0.175) (0.134) (0.195) -0.429*** -0.507*** -0.341** (0.083) (0.127) (0.165) Unemployment Rates of Males Aged 25 to 64 -0.932*** -0.763*** -0.675*** -0.687*** (0.175) (0.148) (0.112) (0.125) -0.950*** -0.792*** -0.696*** -0.707*** (0.146) (0.135) (0.116) (0.127) Proportion of Individuals Aged 16 to 19 in State's Population P(FMWt>=SMWt) Weak identification test (Kleibergen-Paap rk Wald F statistic) -0.012 (0.235) -0.085 (0.226) -0.021 (0.189) -0.079 (0.214) -0.019 (0.228) -0.056 (0.218) -- -- -- -- -0.119 (0.074) -0.100** -0.078** -0.076** (0.041) (0.037) (0.038) 123.9 14.0 19.0 10.5 132.2 36.2 -0.016 (0.186) -0.400* (0.219) 19.3 -0.068 (0.213) 12.6 Panel B: 1st stage P(FMWt>=SMWt) * Federal Minimum Wage (in logs) 1.028*** 0.706*** 0.485*** 0.399*** (0.092) (0.189) (0.111) (0.123) P(FMWt>=SMWt) 0.697*** 0.533*** 0.336*** 0.283*** (0.061) (0.089) (0.076) (0.079) -1.389*** -1.055*** -0.675*** -0.557** (0.164) (0.187) (0.205) (0.209) Controlling for: Year Fixed Effects State Fixed Effects Region-Year Effects Post 1992 State Effects Differential Year Effects For States Always Restricted By Federal MW Yes Yes No No No Yes Yes Yes No No Yes Yes Yes Yes No Yes Yes Yes Yes Yes Yes Yes No No No Yes Yes Yes No No Yes Yes Yes Yes No Yes Yes Yes Yes Yes Observations 1550 1550 1550 1550 1550 1550 1550 1550 R-Squared 0.651 0.670 0.763 0.763 0.684 0.712 0.764 0.766 Notes: Sample consists of 50 state-year observations for the years 1977-2007 (excluding the District of Columbia). The dependent variable is the employment-to-population ratio for teenagers aged 16-19 in the May survey week. The state effective minimum wage is the maximum of the state and federal minimum wages for the state and year (in logs), deflated using national CPI to 2000$. Unemployment rate of males aged 25 to 64 and the fraction of teenagers in the corresponding age calculated using in May CPS survey week. There are 22 states with minimum wages equal to federal minimum wages for all years between 1968 and 2007. See Figure 1. All specifications are weighted by the fraction of state's population in US population in each year, taken from the BLS. Robust standard errors clustered by state of residence during the survey week are in parentheses. (***), (**) and (*) denote significance at 1%, 5% and 10%, respectively. Table 6 Federal Minimum Wage Vs. Aggregate Time Effects, 1977-2007 Dependent Variable: Teenage (16-19) Employment to Population Ratio OLS and TSLS Estimates; Variables of Interest (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) State Effective Minimum Wage (in logs) Instrumented by P1s*t -0.192*** (0.049) -- -0.001 (0.044) -0.201** (0.081) -- 0.016 (0.075) 0.073 (0.079) -- 0.139 (0.085) 0.081 (0.091) -- 0.138 (0.099) P1s * Federal Minimum Wage (in logs) -- Unemployment Rates of Males Aged 25 to 64 Proportion of Individuals Aged 16 to 19 in State's Population -0.526*** -0.525*** (0.127) (0.137) -- -0.463*** -0.474*** (0.069) (0.068) -- -0.165*** -0.232*** (0.059) (0.057) -- -0.164*** -0.219*** (0.059) (0.059) -0.931*** -0.949*** -0.949*** -0.799*** -0.799*** -0.800*** -0.642*** -0.660*** -0.654*** -0.648*** -0.663*** -0.655*** (0.138) (0.129) (0.129) (0.125) (0.117) (0.118) (0.106) (0.104) (0.108) (0.116) (0.114) (0.117) -0.251 (0.284) -0.203 (0.214) -0.203 (0.218) -0.121 (0.217) -0.063 (0.220) -0.062 (0.221) -0.094 (0.194) -0.058 (0.191) -- 115.1 74.2 -- -0.074 (0.198) -0.067 (0.196) -0.043 (0.198) -0.032 (0.197) 81.9 -- 56.3 Weak identification test (Kleibergen-Paap rk Wald F statistic): 187.6 -- 182.4 218.2 62.8 Year Fixed Effects State Fixed Effects Region-Year Effects Post 1992 State Effects Differential Year Effects For F-States and All Others Yes Yes No No No Yes Yes No No No Yes Yes No No No Yes Yes Yes No No Yes Yes Yes No No Yes Yes Yes No No Yes Yes Yes Yes No Yes Yes Yes Yes No Yes Yes Yes Yes No Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Observations 1550 1550 1550 1550 1550 1550 1550 1550 1550 1550 1550 1550 R-Squared 0.713 0.727 0.727 0.750 0.760 0.760 0.783 0.785 0.781 0.788 0.790 0.787 Controlling for: Notes: Sample consists of 50 state-year observations for the years 1977-2007 (excluding the District of Columbia). The dependent variable is the employment-to-population ratio for teenagers aged 16-19 in the May survey week. The state effective minimum wage is the maximum of the state and federal minimum wages for the state and year (in logs), deflated using national CPI to 2000$. Unemployment rate of males aged 25 to 64 and the fraction of teenagers in the corresponding age calculated using in May CPS survey week. There are 22 states with minimum wages equal to federal minimum wages for all years between 1968 and 2007. See Figure 1. All specifications are weighted by the fraction of state's population in US population in each year, taken from the BLS. Robust standard errors clustered by state of residence during the survey week are in parentheses. (***), (**) and (*) denote significance at 1%, 5% and 10%, respectively. Table 7 Regression Models of Last Year Unemployment Rate on Current Year State Effective Minimum Wages Over the Years 1978-2007 OLS Estimates; Dependent Variable, State Effective Minimum Wage (in logs) Variables of Interest P1: Income per Capita in 1969, Berry et al. GI Index 1960-68, and Proportion of Years between 1968 to 1976 FMW>=SMW (i) (ii) P2: Income per Capita in 1969, Berry et al. GI Index 1960-68, and Lagged (2) Proportion of Years FMW>=SMW (iii) (iv) Panel A: Using Unemployment Rate for Males in 25-64 Age Group Unemployment Rate in the Previous Year -0.045** (0.019) -- -0.028*** (0.010) -- Unemployment Rate in the Previous Year * Probability (Projected) that FMW>=SMW in the Previous Year 0.051** (0.021) -- 0.031*** (0.011) -- Panel B: Using State Unemployment Rate Unemployment Rate in the Previous Year -- -0.067*** (0.014) -- -0.045*** (0.007) Unemployment Rate in the Previous Year * Probability (Projected) that FMW>=SMW in the Previous Year -- 0.074*** (0.015) -- 0.049*** (0.008) 0.005 (0.002)** 0.007 (0.002)*** 0.003 (0.002) 0.004 (0.002)* Yes Yes 1500 0.810 Yes Yes 1500 0.816 Yes Yes 1500 0.813 Yes Yes 1500 0.825 Combined Effect State Fixed Effects Year Fixed Effects Observations R-Squared Notes: Sample consists of 50 state-year observations for the years 1978-2007 (excluding the District of Columbia). The dependent variable is state effective (actual) minimum wage, the maximum of the state and federal minimum wages for the state and year (in logs), deflated using national CPI to 2000$. The unemployment rate measure used in Panel A is 1-year lagged value of the unemployment rate of males aged 25 to 64 is calculated using in May CPS survey week. The unemployment rate measure used in Panel B is 1-year lagged value of state’s unemployment rate by May, taken from BLS. The probability of a state to be restricted by federal minimum wages is projected from the corresponding model in Table 1. All specifications are weighted by the fraction of state's population in US population in each year, taken from the BLS. Robust standard errors clustered by state of residence during the survey week are in parentheses. (***), (**) and (*) denote significance at 1%, 5% and 10%, respectively. Table 8 Regression Models for State Changes in Average Teenage Employment Rates and Earnings, 1978-2007 OLS Estimates Variables of Interest (i) (ii) (iii) (iv) (v) (vi) Panel A: Change in Employment-Population Rates Change in State Effective Minimum Wage -0.018 (0.033) -- -0.018 (0.034) -- -0.033 (0.048) -- Change in State Effective Minimum Wage Last Year -- -0.019 (0.040) -- -0.018 (0.041) -- 0.064 (0.060) Change in Unemployment Rates of Males Aged 25 to 64 -0.539*** (0.084) -0.519*** (0.078) -0.540*** (0.086) -0.521*** (0.079) 0.031 (0.103) 0.030 (0.101) Change in the Proportion of Individuals Aged 16 to 19 in State's Population 0.535*** (0.191) 0.531*** (0.193) 0.539*** (0.195) 0.535*** (0.198) 0.301 (0.216) 0.305 (0.213) Panel B: Change in Log Average Hourly Wages Change in State Effective Minimum Wage 0.368*** (0.113) -- 0.368*** (0.115) -- 0.119 (0.128) -- Change in State Effective Minimum Wage Last Year -- 0.037 (0.075) -- 0.034 (0.078) -- 0.037 (0.123) -0.657*** (0.222) -0.789*** (0.249) -0.657*** (0.226) -0.787*** (0.255) -0.287 (0.366) -0.288 (0.366) 0.073 (0.551) 0.073 (0.571) 0.072 (0.560) 0.069 (0.579) -0.464 (0.473) -0.474 (0.477) No No No No No No No No Yes No No Yes Yes Yes No Yes Yes No R-Squared 0.031 0.031 0.109 0.110 0.176 0.176 Observations 1500 1500 1500 1500 1500 1500 Change in Unemployment Rates of Males Aged 25 to 64 Change in the Proportion of Individuals Aged 16 to 19 in State's Population Year Fixed Effects Region-Year Fixed Effects State Fixed Effects Notes: Sample consists of 50 state observations for the years 1978-2007 (excluding the District of Columbia). The dependent variables are the between years changes in the employment-to-population ratio in Panel A and mean wages for teenagers aged 16-19 in the May survey week in Panel B. The change in state effective (actual) minimum wage, the maximum of the state and federal minimum wages for the state and year (in logs), is deflated using national CPI to 2000$. Unemployment rate of males aged 25 to 64 and the fraction of teenagers in the corresponding age calculated using in May CPS survey week. All specifications are weighted by the fraction of state's population in US population in each year, taken from the BLS. Robust standard errors clustered by state of residence during the survey week are in parentheses. (***), (**) and (*) denote significance at 1%, 5% and 10%, respectively. Table 9a Regression Models for Changes in Federal Minimum Wage and Changes in State Teenage Employment Rates, 1978-2007 OLS Estimates Variables of Interest (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) Panel A: Using P1 P1s * Change in Federal Minimum Wage -0.027 (0.207) P1s * Lagged Change in Federal Minimum Wage -0.027 (0.211) -0.212** (0.099) 0.015 (0.261) -0.213** (0.101) 0.013 (0.283) -0.336** (0.135) -0.457*** (0.162) Change in Unemployment Rates of Males Aged 25 to 64 0.069 (0.100) 0.074 (0.103) 0.070 (0.102) 0.074 (0.105) 0.031 (0.102) 0.032 (0.103) 0.033 (0.111) 0.036 (0.111) Change in the Proportion of Individuals Aged 16 to 19 in State's Population 0.340* (0.186) 0.337* (0.187) 0.340* (0.189) 0.337* (0.190) 0.304 (0.217) 0.299 (0.216) 0.300 (0.235) 0.294 (0.234) 0.110 0.111 0.111 0.112 0.175 0.177 0.201 0.203 R-Squared Panel B: Using P2 P2s * Change in Federal Minimum Wage -0.067 (0.114) P2s * Lagged Change in Federal Minimum Wage -0.065 (0.117) -0.101** (0.050) -0.099 (0.181) -0.103** (0.051) -0.110 (0.191) -0.156** (0.064) -0.208*** (0.074) Change in Unemployment Rates of Males Aged 25 to 64 0.065 (0.100) 0.074 (0.103) 0.065 (0.102) 0.074 (0.104) 0.026 (0.103) 0.034 (0.103) 0.029 (0.111) 0.039 (0.112) Change in the Proportion of Individuals Aged 16 to 19 in State's Population 0.340* (0.185) 0.340* (0.187) 0.340* (0.189) 0.340* (0.190) 0.303 (0.216) 0.302 (0.216) 0.296 (0.234) 0.296 (0.234) 0.110 0.110 0.111 0.112 0.176 0.176 0.201 0.202 No No No No No No No No No No No No Yes No No No No Yes No No Yes Yes Yes No No Yes Yes Yes No No Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes 1500 1500 1500 1500 1500 1500 1500 1500 R-Squared Year Fixed Effects Region-Year Fixed Effects State Fixed Effects State Effects for Post 1992 Year Effects for F-States Observations Notes: Sample consists of 50 state observations for the years 1978-2007 (excluding the District of Columbia). The dependent variable is the change in the employment-to-population ratio between two consecutive years for teenagers aged 16-19 in the May survey week. State effective (actual) minimum wage, the maximum of the state and federal minimum wages for the state and year (in logs), deflated using national CPI to 2000$. Unemployment rate of males aged 25 to 64 and the fraction of teenagers in the corresponding age calculated using in May CPS survey week. There are 22 states with minimum wages equal to federal minimum wages for all years between 1968 and 2007. See Figure 1. All specifications are weighted by the fraction of state's population in US population in each year, taken from the BLS. Robust standard errors clustered by state of residence during the survey week are in parentheses. (***), (**) and (*) denote significance at 1%, 5% and 10%, respectively. Table 9b Regression Models for Changes in Federal Minimum Wage and Changes in State Average Earnings, 1978-2007 OLS Estimates Variables of Interest (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) Panel A: Using P1 P1s * Change in Federal Minimum Wage 0.895 (0.570) P1s * Lagged Change in Federal Minimum Wage 0.895 (0.580) -0.163 (0.321) 1.004** (0.379) -0.162 (0.326) 0.964** (0.411) -0.157 (0.334) -0.282 (0.349) Change in Unemployment Rates of Males Aged 25 to 64 -0.308 (0.345) -0.336 (0.341) -0.309 (0.352) -0.337 (0.348) -0.271 (0.366) -0.287 (0.366) -0.307 (0.363) -0.320 (0.364) Change in the Proportion of Individuals Aged 16 to 19 in State's Population -0.450 (0.535) -0.475 (0.532) -0.449 (0.545) -0.474 (0.542) -0.452 (0.476) -0.477 (0.476) -0.558 (0.490) -0.588 (0.485) 0.065 0.062 0.066 0.063 0.187 0.185 0.203 0.202 R-Squared Panel B: Using P2 P2s * Change in Federal Minimum Wage 0.594 (0.375) P2s * Lagged Change in Federal Minimum Wage 0.608 (0.390) -0.080 (0.158) 0.681* (0.339) -0.083 (0.160) 0.666* (0.356) -0.080 (0.129) -0.112 (0.146) Change in Unemployment Rates of Males Aged 25 to 64 -0.300 (0.346) -0.333 (0.343) -0.303 (0.353) -0.336 (0.350) -0.264 (0.367) -0.287 (0.367) -0.303 (0.366) -0.323 (0.366) Change in the Proportion of Individuals Aged 16 to 19 in State's Population -0.456 (0.533) -0.476 (0.532) -0.452 (0.543) -0.474 (0.542) -0.451 (0.475) -0.472 (0.475) -0.558 (0.488) -0.583 (0.485) 0.065 0.062 0.066 0.063 0.187 0.185 0.204 0.202 No No No No No No No No No No No No Yes No No No No Yes No No Yes Yes Yes No No Yes Yes Yes No No Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes 1500 1500 1500 1500 1500 1500 1500 1500 R-Squared Year Fixed Effects Region-Year Fixed Effects State Fixed Effects State Effects for Post 1992 Year Effects for F-States Observations Notes: Sample consists of 50 state observations for the years 1978-2007 (excluding the District of Columbia). The dependent variable is the change in the average hourly wages for teenagers aged 16-19 in the May survey week between two consecutive years. State effective (actual) minimum wage, the maximum of the state and federal minimum wages for the state and year (in logs), deflated using national CPI to 2000$. Unemployment rate of males aged 25 to 64 and the fraction of teenagers in the corresponding age calculated using in May CPS survey week. There are 22 states with minimum wages equal to federal minimum wages for all years between 1968 and 2007. See Figure 1. All specifications are weighted by the fraction of state's population in US population in each year, taken from the BLS. Robust standard errors clustered by state of residence during the survey week are in parentheses. (***), (**) and (*) denote significance at 1%, 5% and 10%, respectively. Table 10a OLS and Instrumental Variables Regression Models for Changes in State-Level Teenage Employment Rates, 1978-2007 OLS and TSLS Estimates; OLS TSLS P1: Income per Capita 1969, Berry et al. GI Index 1960-68 and the Proportion of Years that FMW>=SMW between 1968 and 1976 Variables of Interest (iii) (iv) (v) P2: Income per Capita 1969, GI Index 1960-68 and the Proportion of Years that FMW>=SMW since 1968 to Two Years Ago (i) (ii) (vi) (vii) (viii) Lagged Change in State Effective Minimum Wage (in 0.062 (0.059) 0.065 (0.066) -0.362** -0.365** -0.508** (0.176) (0.180) (0.236) -0.215** -0.230** -0.314** (0.099) (0.104) (0.130) Change in Unemployment Rates of Males Aged 25 to 64 0.029 (0.099) 0.033 (0.111) 0.032 (0.108) 0.035 (0.111) 0.033 (0.114) 0.031 (0.105) 0.032 (0.108) 0.027 (0.113) Change in Proportion of Individuals Aged 16 to 19 in State's Population 0.302 (0.210) 0.303 (0.230) 0.302 (0.230) 0.299 (0.235) 0.274 (0.266) 0.304 (0.221) 0.305 (0.226) 0.288 (0.250) P(FMWt>=SMWt) -- -- -- -- -- 0.003* (0.002) 0.022** (0.010) 0.039 (0.030) Weak identification test (Kleibergen-Paap rk Wald F statistic) -- -- 37.7 36.7 28.5 73.8 70.5 59.0 -- -- Panel A: 2nd stage Panel B: 1st stage P(FMWt>=SMWt) * Change in Federal Minimum Wage (in P(FMWt>=SMWt) 0.924*** 0.922*** 0.900*** (0.150) (0.152) (0.169) -- -- -- 0.702*** 0.678*** 0.662*** (0.082) (0.081) (0.086) -0.024*** 0.020 (0.003) (0.021) 0.096** (0.037) Controlling for: Year Fixed Effects State Fixed Effects Region-Year Effects Post 1992 State Effects Differential Year Effects For States Always Restricted By Federal MW Yes No Yes No No Yes Yes Yes Yes Yes Yes No Yes No No Yes Yes Yes No No Yes Yes Yes Yes Yes Yes No Yes No No Yes Yes Yes No No Yes Yes Yes Yes Yes Observations 1500 1500 1500 1500 1500 1500 1500 1500 R-Squared 0.175 0.202 0.137 0.139 0.139 0.159 0.159 0.175 Notes: Sample consists of 50 state-year observations for the years 1978-2007 (excluding the District of Columbia). The dependent variable is the between years changes in the employment-to-population ratios for teenagers aged 16-19 in the May survey week. The state effective minimum wage is the maximum of the state and federal minimum wages for the state and year (in logs), deflated using national CPI to 2000$. Unemployment rate of males aged 25 to 64 and the fraction of teenagers in the corresponding age calculated using in May CPS survey week. All specifications are weighted by the fraction of state's population in US population in each year, taken from the BLS. There are 22 states with minimum wages equal to federal minimum wages for all years between 1968 and 2007. See Figure 1. Robust standard errors clustered by state of residence during the survey week are in parentheses. (***), (**) and (*) denote significance at 1%, 5% and 10%, respectively. Table 10b OLS and Instrumental Variables Regression Models for Changes in State-Level Teenage Average Wages, 1978-2007 OLS and TSLS Estimates; OLS TSLS P1: Income per Capita 1969, Berry et al. GI Index 1960-68 and the Proportion of Years that FMW>=SMW between 1968 and 1976 Variables of Interest P2: Income per Capita 1969, GI Index 1960-68 and the Proprtion of Years that FMW>=SMW since 1968 to Two Years Ago (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) Lagged Change in State Effective Minimum Wage (in 0.120 (0.124) 0.108 (0.142) 1.172** (0.495) 1.172** (0.504) 1.206** (0.593) 0.991** (0.466) 0.964** (0.445) 0.950** (0.465) Change in Unemployment Rates of Males Aged 25 to 64 -0.285 (0.359) -0.318 (0.364) -0.279 (0.368) -0.282 (0.374) -0.279 (0.382) -0.279 (0.366) -0.280 (0.373) -0.278 (0.381) Change in Proportion of Individuals Aged 16 to 19 in State's Population -0.464 (0.464) -0.568 (0.485) -0.381 (0.451) -0.378 (0.460) -0.404 (0.503) -0.398 (0.453) -0.402 (0.459) -0.450 (0.488) P(FMWt>=SMWt) -- -- -- -- -- -0.003 (0.004) -0.033 (0.036) -0.077 (0.082) Weak identification test (Kleibergen-Paap rk Wald F statistic) -- -- 25.4 24.5 17.7 38.6 37.9 33.1 -- -- Panel A: 2nd stage Panel B: 1st stage P(FMWt>=SMWt) * Change in Federal Minimum Wage (in P(FMWt>=SMWt) 0.857*** 0.856*** 0.799*** (0.170) (0.173) (0.190) -- -- -- 0.669*** 0.706*** 0.702*** (0.108) (0.115) (0.122) 0.011*** 0.072*** 0.144*** (0.004) (0.018) (0.028) Controlling for: Year Fixed Effects State Fixed Effects Region-Year Effects Post 1992 State Effects Differential Year Effects For States Always Restricted By Federal MW Yes No Yes No No Yes Yes Yes Yes Yes Yes No Yes No No Yes Yes Yes No No Yes Yes Yes Yes Yes Yes No Yes No No Yes Yes Yes No No Yes Yes Yes Yes Yes Observations 1500 1500 1500 1500 1500 1500 1500 1500 R-Squared 0.185 0.202 0.123 0.124 0.143 0.142 0.146 0.168 Notes: Sample consists of 50 state-year observations for the years 1978-2007 (excluding the District of Columbia). The dependent variable is the between years changes in the average wages of teenagers aged 16-19 in the May survey week. The state effective minimum wage is the maximum of the state and federal minimum wages for the state and year (in logs), deflated using national CPI to 2000$. Unemployment rate of males aged 25 to 64 and the fraction of teenagers in the corresponding age calculated using in May CPS survey week. All specifications are weighted by the fraction of state's population in US population in each year, taken from the BLS. There are 22 states with minimum wages equal to federal minimum wages for all years between 1968 and 2007. See Figure 1. Robust standard errors clustered by state of residence during the survey week are in parentheses. (***), (**) and (*) denote significance at 1%, 5% and 10%, respectively. Table 11 Reduced Form Regression Models for State Changes in Teenage Employment Rates and Average Earnings, 1978-2007 OLS Estimates (ii) (iii) (iv) 0.067*** (0.018) -- 0.070** (0.033) -- -- -0.019 (0.022) -- 0.008 (0.031) 0.161 0.155 0.279 0.273 0.194*** (0.055) -- 0.225** (0.091) -- -- -0.109** (0.049) -- -0.042 (0.071) 0.113 0.108 0.193 0.190 Year Fixed Effects State Fixed Effects Region-Year Effects Post 1992 State Effects State Linear Time Trends Yes No No No No Yes No No No No Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Observations 1500 1500 1500 1500 Variables of Interest (i) Panel A: Change in Employment-Population Rates Fraction Affected Fraction Affected (last year) R-Squared Panel B: Change in Average Hourly Wages (in logs) Fraction Affected Fraction Affected (last year) R-Squared Notes: Sample consists of 50 state-year observations for the years 1978-2007 (excluding the District of Columbia). The dependent variable in Panel A is the change in the employment-to-population ratio of teenagers aged 16-19 in the May survey week. The dependent variable in Panel B is the change in the mean wage of teenagers aged 16-19 in the May survey week. Following Card (1992), the fraction of affected workers is equal to the proportion of teenage workers last year who report hourly wages that are equal to or higher than last year's federal minimum wage and not higher than federal minimum wage this year's federal minimum wage. Unemployment rate of males aged 25 to 64 and the fraction of teenagers in the corresponding age calculated using in May CPS survey week. All specification control for the change in state unemployment rate (males aged 25 to 64) and the change in the proportion of teenagers in the state population. All specifications are weighted by the fraction of state's population in US population in each year, taken from the BLS. Robust standard errors clustered by state of residence during the survey week are in parentheses. (***), (**) and (*) denote significance at 1%, 5% and 10%, respectively. Table 12 Regression Models of Last Years Changes in Unemployment Rate, Average Teenage Wages and State Minimum Wage Status on the Treatment Variables 1979-2006 OLS Estimates; The Treatment Variable Variables of Interest The Proportion of Teenage Workers Affected (i) (ii) Ps1 * the Change in Federal Minimum Wage (iii) (iv) (v) (vi) (vii) (viii) The Change in the State Unemployment in the Previous Year -0.602*** -0.339* (0.217) (0.180) -0.313* (0.187) -0.291 (0.183) -0.008 (0.014) -0.002 (0.012) -0.002 (0.012) -0.001 (0.012) The Change in the State Unemployment Two Years Ago -0.383** (0.179) -0.149 (0.193) -0.165 (0.193) 0.005 (0.015) 0.020 (0.016) 0.019 (0.016) 0.020 (0.016) The Change in the Wage Rate of Teenagers in the Previous Year -0.116*** -0.108*** -0.111*** -0.106*** (0.023) (0.020) (0.020) (0.020) 0.001 (0.002) 0.001 (0.002) 0.001 (0.002) 0.001 (0.002) -0.182 (0.183) The Change in the Wage Rate of Teenagers in Two Years Ago -0.075* (0.042) -0.048** -0.050** -0.044** (0.022) (0.022) (0.022) -0.001 (0.003) 0.001 (0.001) 0.001 (0.001) 0.001 (0.001) Federal State in the Previous Year (FMWt-1 >= SMWt-1) 0.025*** 0.020** 0.038*** 0.033*** (0.007) (0.008) (0.010) (0.011) 0.002* (0.001) 0.000 (0.001) 0.003 (0.002) 0.003 (0.002) Year Fixed Effects State Fixed Effects Region-Year Effects Post 1992 State Effects State Linear Time Trends Yes Yes No No No Yes Yes Yes No No Yes Yes Yes Yes No Yes Yes Yes Yes Yes Yes Yes No No No Yes Yes Yes No No Yes Yes Yes Yes No Yes Yes Yes Yes Yes Observations 1400 1400 1400 1400 1400 1400 1400 1400 R-Squared 0.825 0.835 0.876 0.887 0.956 0.963 0.979 0.981 Notes: Sample consists of 50 state-year observations for the years 1979-2006 (excluding the District of Columbia). The dependent variable in the first panel is the fraction of workers affected that equals to the proportion of teenage workers last year who report hourly wages that are equal or higher to last year federal minimum wage and not higher than federal minimum wage this years. The dependent variable in the second panel is the interaction between state's propensity of be restricted by federal minimum wages (Ps1) and the change in federal minimum wages. All specifications are weighted by the fraction of state's population in US population in each year, taken from the BLS. Robust standard errors clustered by state of residence during the survey week are in parentheses. (***), (**) and (*) denote significance at 1%, 5% and 10%, respectively. Table 13 Reduced Form Regression Models for the Differential Effect of Federal Minimum Wage and Fraction Affected on Changes in State-Level Teenage Employment Rates and Average Wags, 1980-2006 OLS Estimates Wages Employment (i) (ii) (iii) (iv) (v) (vi) 0.236** (0.104) 0.090 (0.088) 0.074 (0.089) -- -- -- Ps1 * the Change in Federal Minimum Wage (in logs) -- -- 1.168* (0.666) -- -- -- Fraction Affected (last year) -- -- -- -0.008 (0.036) 0.010 (0.035) 0.016 (0.036) Ps1 * the Lagged Change in Federal Minimum Wage (in logs) -- -- -- -- -- -0.452** (0.217) Variables of Interest Fraction Affected Lagged Outcomes Last Year -- -0.683*** -0.685*** (0.032) (0.032) -- -0.528*** -0.528*** (0.035) (0.035) Two Years Ago -- -0.341*** -0.343*** (0.033) (0.033) -- -0.288*** -0.287*** (0.022) (0.022) Year Fixed Effects State Fixed Effects Region-Year Effects Post 1992 State Effects State Linear Time Trends Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Observations 1350 1350 1350 1350 1350 1350 R-Squared 0.230 0.487 0.489 0.189 0.383 0.384 Notes: Sample consists of 50 state-year observations for the years 1980-2006 (excluding the District of Columbia). The dependent variable in the first panel is the change in the mean wage of teenagers aged 16-19 in the May survey week. The dependent variable in the second panel is the change in the employment-to-population ratio of teenagers aged 16-19 in the May survey week. Following Card (1992), the fraction of affected workers is equal to the proportion of teenage workers last year who report hourly wages that are equal to or higher than last year's federal minimum wage and not higher than federal minimum wage this year's federal minimum wage. Unemployment rate of males aged 25 to 64 and the fraction of teenagers in the corresponding age calculated using in May CPS survey week. All specification control for the change in state unemployment rate (males aged 25 to 64) and the change in the proportion of teenagers in the state population. All specifications are weighted by the fraction of state's population in US population in each year, taken from the BLS. Robust standard errors clustered by state of residence during the survey week are in parentheses. (***), (**) and (*) denote significance at 1%, 5% and 10%, respectively. Table A1: Federal Minimum Wages, 1938 to 2009 Source: Bureau of Labor Statistics Date From Which the New Federal Minimum Wage Is Effective Value Oct 24, 1938 Oct 24, 1939 Oct 24, 1945 Jan 25, 1950 Mar 1, 1956 Sep 3, 1961 Sep 3, 1963 Feb 1, 1967 $0.25 $0.30 $0.40 $0.75 $1.00 $1.15 $1.25 $1.40 Feb 1, 1968 May 1, 1974 Jan. 1, 1975 Jan 1, 1976 $1.60 $2.00 $2.10 $2.30 Jan 1, 1978 Jan 1, 1979 Jan 1, 1980 Jan 1, 1981 $2.65 $2.90 $3.10 $3.35 Apr 1, 1990 Apr 1, 1991 $3.80 $4.25 Oct 1, 1996 Sep 1, 1997 $4.75 $5.15 Jul 24, 2007 Jul 24, 2008 Jul 24, 2009 $5.85 $6.55 $7.25 Table A2: 1977-2007 Averages By States for Selected Key Variables (i) State Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware D.C Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming All States (ii) (iii) (iv) (v) (vi) States' Fraction of Average Value Average Hourly Employment to Individuals in the 16‐ Unemployment Rate Unemployment of State Wages of the 16‐19 Population Ratio for Rates Reported By of Males Aged 19 Age Group in Effective MW Age Group the 16‐19 Age Group States' Population Between 25 and 64 Bureau of Labor (deflated to (deflated to 2000$) (percent) Statistics (Percent) 2000$) 33.46 8.51 4.12 6.57 5.98 5.26 38.82 9.31 7.35 8.11 8.18 6.17 42.62 8.51 3.57 5.89 6.30 5.30 38.29 8.64 4.03 6.46 6.21 5.29 36.01 8.33 4.79 6.91 7.12 5.74 46.89 8.14 3.59 5.29 6.61 5.31 44.65 7.72 3.59 4.91 7.07 5.79 44.89 7.95 3.23 4.92 6.90 5.54 20.94 6.01 5.11 7.47 7.27 6.11 40.02 7.28 3.53 5.89 6.54 5.34 38.21 8.30 3.29 5.40 6.54 5.26 34.85 7.63 4.07 4.54 7.05 5.73 49.08 9.30 4.37 5.86 6.55 5.26 41.64 8.42 4.67 6.72 6.49 5.38 46.04 8.79 3.84 5.82 6.50 5.26 53.30 8.31 3.20 4.75 6.13 5.34 49.63 8.33 3.09 4.58 6.11 5.26 38.22 8.39 4.23 6.67 6.49 5.26 29.76 9.19 4.96 7.33 6.18 5.26 44.82 8.13 4.29 5.62 6.45 5.52 42.12 8.12 2.99 5.06 6.55 5.29 46.07 7.76 3.96 5.38 6.90 5.72 45.61 8.71 5.28 7.85 6.34 5.31 56.89 8.73 3.41 4.76 6.56 5.35 26.69 9.39 4.35 7.75 6.12 5.26 45.82 8.07 3.76 5.67 6.30 5.30 43.90 8.23 4.32 5.83 6.15 5.29 54.59 8.79 2.28 3.46 6.24 5.26 45.76 7.73 4.19 5.88 7.29 5.29 52.13 7.88 2.78 4.28 6.87 5.29 36.85 8.11 3.82 5.98 6.74 5.52 35.04 9.15 5.04 6.86 6.40 5.26 31.03 8.21 4.55 6.46 6.41 5.38 42.28 8.01 3.05 5.31 6.33 5.29 49.41 9.09 3.26 4.15 6.08 5.26 45.80 8.41 4.44 6.59 6.08 5.31 39.58 8.64 3.50 5.25 6.47 5.26 42.25 7.90 5.35 6.93 6.82 5.93 41.75 7.88 4.57 6.46 6.31 5.31 48.42 7.58 4.01 5.86 6.46 5.71 38.34 8.79 3.36 6.03 6.27 5.26 52.33 8.85 2.76 3.76 6.10 5.26 38.39 8.33 3.50 6.33 6.31 5.26 37.90 8.97 3.85 6.13 6.49 5.26 54.04 10.61 3.24 4.94 6.44 5.26 46.10 8.17 3.49 4.66 6.36 5.68 41.60 7.95 2.43 4.49 6.55 5.26 44.35 8.31 4.85 6.88 6.98 5.86 27.43 7.79 5.94 8.63 6.01 5.28 51.65 8.62 4.06 5.30 6.33 5.31 46.98 9.08 3.50 5.03 6.22 5.26 42.42 8.37 3.98 5.84 6.51 5.41 Notes: The employment‐to‐population ratio, the fraction of individuals in the 16‐19 age group in states' population, the unemployment rate of males aged 25‐ 64 and the average hourly wage of teenage workers are calculated using the CPS May files. The mean state effective minimum wage (deflated to 2000$) is taken from the Bureau of Labor Statistics Table A3: Regression Models for The Change in State Effective Minimum Wages Depending on the Change Federal Minimum Wages, Nominal Vs. CPI Adjusted, 1978-2007 OLS Estimates; Propensity that Federal MW is Equal or Higher than State Specific MW, Projected by: Variables of Interest P1:Income per Capita 1969, Berry et al. GI Index 1960-68 and the Proportion of Years that FMW>=SMW between 1968 and 1976 (i) (ii) (iii) (iv) P2: Income per Capita 1969, GI Index 1960-68 and the Proportion of Years that FMW>=SMW since 1968 to Two Years Ago (v) (vi) (vii) (viii) Panel A: Changes in CPI Adjusted Minimum Wage State Propensity to be Restricted by Federal MW * Federal Minimum Wage (in logs) 1.108*** (0.093) 0.856*** (0.173) 0.857*** (0.176) 0.799*** (0.190) 0.749*** (0.071) 0.706*** (0.115) 0.729*** (0.119) 0.702*** (0.122) 1.095*** (0.066) 0.839*** (0.143) 0.826*** (0.160) 0.788*** (0.170) 0.668*** (0.052) 0.540*** (0.084) 0.536*** (0.091) 0.508*** (0.094) Year Fixed Effects State Fixed Effects Region-Year Effects Post 1992 State Effects Differential Year Effects For States Always Restricted By Federal MW Yes No No No No Yes Yes Yes No No Yes Yes Yes Yes No Yes Yes Yes Yes Yes Yes No No No No Yes Yes Yes No No Yes Yes Yes Yes No Yes Yes Yes Yes Yes Observations 1500 1500 1500 1500 1500 1500 1500 1500 Panel B: Changes in Nominal Minimum Wage State Propensity to be Restricted by Federal MW * Change in Federal Minimum Wage (in logs) Notes: Sample consists of 50 state-year observations for the years 1978-2007 (excluding the District of Columbia). The dependent variable is the change in state effective minimum wages. The state effective minimum wage is the maximum of the state and federal minimum wages for the state and year (in logs). We use national CPI to 2000$ to deflate federal and state effective minimum wages. All specification control for unemployment rate of males aged 25 to 64 and the fraction of teenagers in the corresponding age calculated using in May CPS survey week. There are 22 states with minimum wages equal to federal minimum wages for all years between 1968 and 2007. See Figure 1. All specifications are weighted by the fraction of state's population in US population in each year, taken from the BLS. Robust standard errors clustered by state of residence during the survey week are in parentheses. (***), (**) and (*) denote significance at 1%, 5% and 10%, respectively.