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Regional Studies,
Vol. 33.8, pp. 713±726
Do Minimum Wage Hikes Raise US Long TermUnemployment? Evidence Using State MinimumWage Rates
1
MARK D. PARTRIDGE* and JAMIE S. PARTRIDGE²
*
Department of Economics, Stewart Hall, St Cloud State University, St Cloud, MN 56301-4498, USA
²
Department of Management, St John’s University/College of St Benedict, St Joseph, MN 56374, USA
(Received July 1998; in revised form March 1999)P
ARTRIDGE
M. D. and P
ARTRIDGE
J. S. (1999) Do minimum wage hikes raise US long term unemployment? Evidenceusing state minimum wage rates,
Reg. Studies
33,
713±726. Several recent studies have challenged the conventional notion thatraising the minimum wage reduces employment. This study considers a related but relatively unexplored issue by examiningthe minimum wage’s in¯uence on long durations of unemployment. By considering long term unemployment rates, this studyextends the previous minimum wage literature by examining the persistence of minimum wage e
V 
ects. The empirical analysisconsiders state data from the latter 1980s, a unique period when many states raised their minimum wage above the federal level.The results suggest that a greater minimum wage increases long term unemployment rates. Further evidence indicates thatincreased minimum wage
coverage 
also raises long term unemployment rates. Subsequent analysis yielded similar patterns for other aggregate labour market measures. Thus, state and federal policy makers should weigh these potential costs in decidingwhether to increase minimum wage rates in the future.Long term unemployment Minimum wage Minimum wage coverage UnemploymentP
ARTRIDGE
M. D. et P
ARTRIDGE
J. S. (1999) Les retom- P
ARTRIDGE
M. D. und P
ARTRIDGE
J. S. (1999) FuÈhrenbeÂes des augmentations du salaire minimum sur le choÃmage Anhebungen von MindestloÈhnen in den Vereinigten Staatende longue dureÂe? Des preuves provenant des salaires mini- zu langfristigem Ansteigen der Arbeitslosigkeit? Beweise, diemum aux Etats-Unis,
Reg. Studies
33,
713±726. Des eÂtudes sich auf staatliche Mindestlohnraten stuÈtzen,
Reg. Studies
33,
reÂcentes ont mis en question l’ideÂe recËue qu’une augmenta- 713±726. Verschiedene, kuÈrzlich veroÈ
V 
entlichte Unter-tion du salaire minimum entraõÃne une reÂduction de l’emploi. suchungen stellten die herkoÈmmliche Meinung in Frage, daûCette eÂtude-ci cherche aÁconsideÂrer un sujet connexe mais ein Anheben der MindestloÈhne zur Herabsetzung der Zahlrelativement inexploreÂ; autrement dit, les retombeÂes du salaire der BeschaÈftigten fuÈhrt. Dieser Aufsatz zieht eine damitminimum sur le choÃmage de longue dureÂe. En examinant verbundene, doch relativ selten untersuchte Frage inles taux de choÃmage de longue dureÂe, cette eÂtude eÂlargit la Betracht, indem er den Ein¯uû des Mindestlohnes auf langdocumentation anteÂrieure qui porte sur le salaire minimum anhaltende Arbeitslosigkeit pruÈft. Mit Hilfe der langfristigenen consideÂrant la persistance des retombeÂes du salaire mini- Arbeitslosigkeitsraten erweitert die Studie durch Unter-mum. On analyse des donneÂes qui proviennent de la ®n des suchung der anhaltenden Auswirkungen von MindestloÈhnenanneÂes 1980, une eÂpoque exceptionnelle ouÁ bon nombre des die Literatur uÈber MindestloÈhne. Die empirische AnalyseeÂtats ont augmenteÂleur salaire minimum au-dessus du niveau zieht o
Y
zielle Datan der spaÈten achtziger Jahre heran, einer feÂdeÂral. Les reÂsultats laissent supposer qu’un rencheÂrissement einmaligen Periode, insoweit als viele Staaten ihre Min-du salaire minimum entraõÃne une hausse des taux de choÃmage destloÈhne uÈber die auf Bundesebene gezahlten anhoben. Diede longue dureÂe. Des preuves suppleÂmentaires laissent voir Ergebnisse legen nahe, daû ein hoÈherer Mindestlohn zumqu’un accroissement de la proportion de smicards ameÁne Ansteigen der langfristige Arbeitslosenraten fuÈhrt. Weitereaussi aÁ une hausse des taux de choÃmage de longue dureÂe. Beweise lassen erkennen, daû vermehrte Mindestlohn-Une analyse ulteÂrieure a fourni des reÂsultats comparables deckung auch langfristige Arbeitslosigkeitsraten anhebt. Diepour ce qui est des autres mesures globales du marcheÂdu anschlieûende Analyse ergab aÈhnliche Muster fuÈr andere, dentravail. Ainsi, les deÂcideurs, et au niveau de l’eÂtat et sur le Gesamtarbeitsmarkt umfassende Maûnahmen. Auf staatlicher plan feÂdeÂral, devraient eÂvaluer ces couÃts potentiels au moment wie auf bundesstaatlicher Ebene sollten politische Entschei-ouÁ ils deÂcident si, oui ou non, il faudra augmenter les taux dungen deshalb diese potentiellen Kosten mit in Betrachtde salaire minimum. ziehen, wenn sie zukuÈnftige Anhebungen von Min-destloÈhnen erwaÈgen.ChoÃmage de longue dureÂe Salaire minimumProportion de smicards ChoÃmage Langfristige Arbeitslosigkeit MindestlohnMindestlohndeckung Arbeitslosigkeit
0034-3404/99/080713-14
©
1999 Regional Studies Association
 
714
Mark D. Partridge and Jamie S. Partridge 
INTRODUCTION
exceeded 20%, where the 20% ®gure was topped inonly one other year since World War Two (1983)(P
ARTRIDGE
and R
ICKMAN
, 1998). Longer durationsSince its original enactment in the 1930s, federal mini-mum wage increases have been viewed by many as an of unemployment likely reinforced the seemingly highlevels of job anxiety felt by workers during the 1990se
V 
ective avenue to redistribute income and reducepoverty (F
REEMAN
, 1996) as well as to provide a (see A
ARONSON
and S
ULLIVAN
, 1998, for moredetails of this anxiety). By comparison, the share of `living wage’ (K
UTTNER
, 1997). Given that in¯ationerodes the purchasing power of a ®xed minimum wage, long term unemployed in total unemployment was lessthan 10% in the latter 1980s. This raises an interestingevery few years there are calls for further increases.With US income inequality rising since the 1970s, the question: did the 1990±91 increase in the federal mini-mum wage contribute to longer durations of un-policy implications of minimum wage hikes are evenmore signi®cant. In fact, many economists have argued employment? In addition, the onset of federal welfarereform means that states will carry a greater share of that the declining purchasing power of the minimumwage since the 1970s can account for about 30% of the income redistribution burden. One implication isthat state policy makers may feel pressure to boost their the ensuing increase in earnings dispersion (F
ORTIN
and L
EMIEUX
, 1997). minimum wage to lift poor families out of poverty.Given that many chronic welfare recipients can also be Yet, economists have traditionally cautioned thatraising the wage ¯oor has deleterious consequences viewed as outsiders, the relationship between long termunemployment and state minimum wage rates mayincluding additional unemployment, reduced generaltraining and o
V 
setting reductions in fringe bene®ts. shed light on this topic as well.In what follows, the next section sketches someB
ROWN
et al.
’s, 1982, survey of the literature indicatedthat a 10% increase in the minimum wage would on simple minimum wage models. The third section dis-cusses empirical implementation and the fourth sectionaverage reduce teen employment by 1±3%, raise teenunemployment rates by 0±0´75%, with smaller e
V 
ects discusses the results. In addition, section ®ve will con-sider the in¯uence of state minimum wage rates onfor adults. Such negative e
V 
ects temper the desiredredistribution. None the less, US economists rarely, if aggregate unemployment rates. This additional analysiswill examine the robustness of the long term un-at all, discuss minimum wage e
V 
ects on unemploymentduration. employment rate results and will be of interest in their own light. The ®nal section presents some concludingRegardless, as F
REEMAN
, 1995, notes, it is
possible 
that minimum wage legislation can create a class of thoughts.permanent outsiders who cannot obtain employment,even though they would be willing to work at a rate
THE MINIMUM WAGE AND THE
below the minimum wage. In fact, S
IEBERT
, 1997,
LABOUR MARKET
contends that high minimum wage rates are a keyfactor behind high levels of structural and long termThe need to better understand
all 
minimum wageunemployment in Europe. Yet, the possibility thate
V 
ects is highlighted by a possible breakdown in theminimum wage hikes increase
long term
unemploymentconsensus among economists regarding the minimumis a relatively unexplored topic for the US. However,wage during the 1990s. Foremost is a series of cross-C
LARK
and S
UMMERS
, 1990a, ®nd that most jobless-sectional and case studies by C
ARD
and K
RUEGER
ness in the US is composed of a hard core group of (e.g. 1992, 1994, 1995) which found that the 1990±91unemployed who are jobless for more than six months,increase in the federal minimum wage had virtually noeven though the typical person exits unemploymentimpact on employment. Similarly, D
ICKENS
et al.
,rather quickly (less than three months). It seems plaus-1999, and M
ACHIN
and M
ANNING
, 1994, found noible that members of this hard core group would benegative minimum wage e
V 
ects for UK employment.potentially susceptible to job loss due to minimumHowever, recent ®ndings that minimum wage hikeswage hikes, while ®nding a new job would be morehave very little e
V 
ect on employment have not gonedi
Y
cult.
2
Therefore, this study will investigate theunchallenged. For example, using a variety of data setsimpact of state minimum wage laws on the prevalenceand techniques, N
EUMARK
and W
ASCHER
, 1992,of long term unemployment (de®ned as greater than1994; D
EERE
et al.
, 1995; K
IM
and T
AYLOR
, 1995;26 weeks).C
URRIE
and F
ALLICK
, 1996; and P
ARTRIDGE
andOne reason for the lack of emphasis on US longP
ARTRIDGE
, 1999, have found that increases in theterm unemployment is that is has been viewed as aminimum wage reduce employment, while P
ART-
relatively small problem. However, this may be chang-
RIDGE
and P
ARTRIDGE
, 1998, found that theying. The growing importance of long term unemploy-increase teen unemployment rates.ment in the US can be seen by noting that, between Given the con¯icting minimum wage ®ndings in the1992±94, the (annual) share of unemployed workers literature, it is not surprising that there are numerousmodels of how minimum wage legislation a
V 
ects thewho had sought employment for more than 26 weeks
 
Do Minimum Wage Hikes Raise US Long Term Unemployment?
715
labour market (e.g. see M
INCER
, 1976; B
ROWN
et al.
, superior to examining changes in unemployment rates(or vice versa), suggesting a need to consider all labour 1982; C
ARD
and K
RUEGER
, 1995). It is not possibleto do a complete survey, but it is useful to outline some market indicators.Standard labour market theory also suggests that aof the major themes in these models.The standard minimum wage model is the basic greater minimum wage can increase long term un-employment. That is, if less skilled workers with a lowsupply and demand model. In its simplest form, impos-ing a wage ¯oor above the equilibrium wage reduces value of marginal product (with realistic reservationwages) cannot be o
V 
ered a wage below the minimumthe quantity of labour demanded while inducing newentrants into the labour market. Two outcomes are an wage by employers, their probability of receiving a jobo
V 
er will diminish and their duration of unemploymentincrease in the unemployment rate and a reduction inemployment. However, real world complexities will increase. Using 1988 as a representative year for astylistic example, the median duration of unemploy-complicate the analysis. First, minimum wage coverageis incomplete. A greater minimum wage may induce ment was 5´9 weeks, roughly corresponding to a cons-tant 0´11 weekly hazard rate for exiting unemployment.workers from the uncovered sector to queue for jobs inthe covered sector, while previously employed workers Suppose that a higher minimum wage slightly reducesthis to 0´10. This modest change would increase thefrom the covered sector may be forced to ®nd work inthe uncovered sector. Moreover, some workers may be probability by one-third that an individual’s unemploy-ment spell would last at least 26 weeks, which isso discouraged by diminished employment chances thatthey exit the labour force (and hence are not counted consistent with long term unemployment rates beingmore cyclically responsive than short term unemploy-as o
Y
cially unemployed). Further complicating theanalysis is that ®rms may reallocate their shares of full- ment rates (C
LARK
and S
UMMERS
, 1990a). Moreover,if there is negative duration dependence where theand part-time labour (R
ESSLER
et al.
, 1996) such thatemployment changes do not accurately re¯ect actual hazard rate declines over time, a minimum wageincrease would further raise the chance of a longchanges in total labour inputs (W
ELCH
, 1995). Finally,®rms may substitute more skilled labour for less skilled unemployment duration.
3
Also, T
HOMAS
, 1996, ®ndsthat the length of unemployment spells is
negatively
labour, which further confounds the e
V 
ects on totalemployment. related to the previous job’s wages. This suggests thatlow skilled, low wage workers are even more susceptibleThe monopsony labour market model has recentlyreceived attention in the minimum wage debate to longer unemployment durations. Since these lower skilled workers are the very people minimum wage(C
ARD
and K
RUEGER
, 1995). In this case, if anemployer is (labour) supply constrained, minimum hikes are hoped to bene®t, greater unemploymentduration seems especially counter to the policy goals.wage increases can yield employment gains. Card andKrueger contend that information imperfections and A key advantage of considering the long term un-employed is that it seems
much
less likely that a potentialmobility costs make the monopsony model applicablein low wage labour markets. However, many econom- worker induced into the labour market, by say a 10%minimum wage increase, would remain in the labour ists question the general applicability of the monopsonymodel in the typical labour market. force for more than six months without a job (i.e.continuously searching for work for such a small gain).Therefore, the employment outcome of increasingthe minimum wage is hard to predict. Standard models That is, any increased long term unemployment shouldbe almost entirely concentrated among those whogenerally imply a reduction in the number of labour hours, but not necessarily total employment, while a would have been in the labour force without a mini-mum wage hike.monopsony model can imply the opposite. The relativesize and substitution elasticities in the covered and Despite the above discussion, the minimum wagemay have very little in¯uence on long term unemploy-uncovered sector further confound employment pre-dictions. Changes in total employment are also compli- ment if industries that employ a disproportionate shareof minimum wage workers have almost no unemploy-cated by changes in the prevalence of part-timeemployment and average hours of work as well as ment to begin with. However, using 1988 Bureau of Labor Statistics data, this does not appear to be thechanges in skill intensities. Likewise, the quantity of labour supplied may increase if new workers are case. The overall 1988 unemployment rate was 5´5%. Yet, in retail, where over one-half of minimum wageinduced by the greater wages, or decrease if workersbecome discouraged and exit the labour force. Thus, workers are concentrated (S
MITH
and V
AVRICHEK
,1992), the unemployment rate was 6´1%. It was anunemployment rates may not necessarily increase.However, if workers from the uncovered sector queue even higher 8´9% for eating and drinking establishmentworkers, which is where retail sector minimum wagefor employment in the covered sector, these searchcosts add to the social waste of increasing the minimum workers are especially concentrated. Relatively highunemployment rates are found in other industrieswage (M
INCER
, 1976). One implication is that, indetermining the impact of minimum wage laws, it is where the minimum wage is relatively important:apparel, 8´1%; food and kindred industries, 8´2%; andnot clear whether examining employment changes is
of 00

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