The minimum wage employment effect: A time-series study of the manufacturing, retail trade, and service industries

This study investigates whether an increase in the minimum wage affects the level of employment in the manufacturing, retail trade, and service industries using time series data. I estimate both unrestricted and restricted reduced form models and unstructured and structured distributed lag models. Problems with multicollinearity and the possibility of a lagged response motivate the estimation of a polynomial distributed lag model. While the empirical models generate estimated employment elasticities that are small and sometimes statistically insignificant, these small elasticities are consistent with the findings of other researchers. Moreover, the study finds evidence of some positive substitution effects across industries with employment rising slightly in some industries and falling slightly in others over time after a rise in the wage floor. There is also evidence that the long-run effects are larger than short-run, immediate impacts.