Using Regional Variation in Wages to Measure the Effects of the Federal Minimum Wage

Abstract

The imposition of a national wage standard sets up a useful natural experiment in which the "treatment effect" varies across states depending on the fraction of workers earning less than the new minimum. I use this idea to evaluate the effect of the April 1990 increase in the Federal minimum wage on teenage wages, employment, and school enrollment. Interstate variation in teenage wages was high at the end of the 1980s, in part because 16 states had enacted state-specific minimums above the prevailing Federal rate. Comparisons of grouped and individual state data confirm that the rise in the minimum wage significantly increased teenage wages. There is no evidence of corresponding losses in teenage employment or changes in teenage school enrollment.