Does the employment effect of National Minimum Wage vary by non-employment rate? A Regression Discontinuity approach. A new GLO Discussion Paper by GLO Fellows Xu Lei & Yu Zhu.

A new GLO Discussion Paper finds that a minimum wage increase has caused positive employment effects in the UK.

GLO Discussion Paper No. 1109, 2022

Does the employment effect of National Minimum Wage vary by non-employment rate? A Regression Discontinuity approach  Download PDF
by Xu, Lei & Zhu, Yu

GLO Fellows Xu Lei & Yu Zhu

Author Abstract: We examine the impact of increasing minimum wage on employment by exploiting variation in the age-dependent National Minimum Wage (NMW) in the UK. We extend the Regression Discontinuity model to evaluate the procyclicality of employment effect and show that previous estimates may be biased due to failure to account for the local non-employment rate. Contrary to the existing literature, we report a positive employment elasticity after accounting for the effect of local labour market conditions. The results suggest that the positive employment effect of increasing minimum wage is strongly procyclical, i.e. is more pronounced in areas with low non-employment rates. Under an assumption that employers have no direct impact around the cut-off point, the results suggest that a higher minimum wage increases labour supply of young workers.

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JUST PUBLISHED
Vol. 35, Issue 3, July 2022: Journal of Population Economics (JOPE): 15 articles
https://link.springer.com/journal/148/volumes-and-issues/35-3
Just released: CiteScore of JOPE moves up from 3.9 (2020) to 6.5 (2021)! LINK

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