Date Added: Jun 2010
Traditional estimates of minimum wage effects include controls for state unemployment rates and state and year fixed-effects. Using CPS data on teens for the period 1990 - 2009, the authors show that such estimates fail to account for heterogeneous employment patterns that are correlated with selectivity among states with minimum wages. As a result, the estimates are often biased and vary with the source of identifying variation. Including controls for long-term growth differences among states and for heterogeneous economic shocks renders the employment and hours elasticities indistinguishable from zero and rules out any but small disemployment effects.