Minimum Wage Laws: Are They Overrated?

Abstract

I think there is a reasonably high degree of agreement in studies of the impact of the minimum wage on employment, unemployment, and the distribution of income -- though I will also point to a few areas where further work could refine our understanding of labor markets, and perhaps even change the prevailing view of the impact of the minimum wage. I consider the textbook minimum wage theory; complications of partial coverage and heterogeneous workers; the estimated impact on employment and unemployment; whether there should be a lower wage for teenagers; and the effect of the minimum wage on the income distribution. In the end, what have we learned? The effects of the minimum wage on employment are smaller than I would have supposed. The minimum wage is overrated: by its critics as well as its supporters.