Effects of the Minimum Wage on Employment Dynamics

Abstract

Despite the voluminous literature on minimum wages, there is little consensus on the mechanisms by which employment might be affected. Using administrative data in a state-year panel, we evaluate employment dynamics directly. We find that although the minimum wage does not appear to have strong short-run effects on the level of total employment, it significantly reduces rates of job growth. This occurs primarily through reductions in hiring and this effect is somewhat more pronounced for continuing establishments than newborn establishments. Moreover, we find that the reduction in job creation cannot be attributed to reductions in employee turnover and that there is no effect on entry or exit of establishments.

Keywords: minimum wage, employment, dynamics

JEL Classification: J21, J23, J38, J63