Minimum wage laws: What does an employment increase imply about output and welfare?
Card and Krueger find empirically that minimum wage laws may increase employment. The current paper seeks the analytical implications of employment-increasing minimum wages for output and welfare. The standard supply and demand model cannot be used for this purpose. One needs a model in which employment-increasing minimum wages are at least possible, such as this paper's efficiency wage model. Here, an employment increase is neither necessary nor sufficient for expected welfare gains for either employed or unemployed workers. An employment-increasing minimum wage raises output but unambiguously lowers labor force participation and hurts those who remain unemployed.
Carter, T. J. (1998). Minimum wage laws: What does an employment increase imply about output and welfare? Journal of Economic Behavior & Organization, 36, 473-485. doi: 10.1016/S0167-2681(98)00107-3
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