EMPLOYMENT AND LABOR FORCE EFFECTS OF CHANGES IN THE FEDERAL MINIMUM WAGE 1966-1978: A BOX-JENKINS APPROACH

In the last decade, there have been many studies of the employment effects of minimum wage changes. The studies have concentrated largely on teenagers, and the findings have not been consistent, even though empirical models and time periods have been quite similar.;The author uses recursive residuals tests to test the stability of the regression coefficients, and finds that they are highly unstable, which implies a misspecification of the model. Next, Box-Jenkins techniques are used to determine the correct dynamic specification of the relationship between a group's employment ratio and the effective minimum wage. Then, regressions are run again with the Box-Jenkins specification, and subjected to the stability tests. They pass the tests. It is concluded that the incorrect specification of the dynamic lag structure of the minimum wage variable in other studies is a likely source of coefficient instability, which results in inconsistent findings when time periods differ.;The author finds negative employment effects for twelve of sixteen demographic groups. He also finds that males suffer larger disemployment effects than females, generally. He finds that there is no consistent evidence that nonwhites are affected more than white, nor that younger groups are affected more than adults.;Finally, the author reviews the usefulness of the minimum wage as a tool to fight poverty. He concludes that poverty in 1978 was not related to hourly wage rates. The wage losses resulting from disemployment probably at least offset wage gains of those still employed. Therefore, he concludes that minimum wages at best do nothing, and at worst cause employment problems, wage losses, and distortions in the labor and capital markets. The author not only opposes a teenage minimum wage differential, he favors the abolishment of the minimum wage.;In this study, the author reviews some of the more important empirical research of the last decade. He uses a model similar to those developed in the literature to investigate employment effects of minimum wage changes from 1966 to 1978 on various demographic groups, categorized by age, sex, and race. The results are compared to those discussed in the literature survey, and found to be in general agreement with the major findings of several works.