The minimum wage and labor market outcomes/ Christopher J. Flinn.

1 Introduction 1
1.1 Plan of the Book 2
1.2 Theoretical Perspectives on the Minimum Wage 3
1.3 Brief History of the Minimum Wage in the United States 10
1.4 State Minimum Wages 14
2 Descriptive Evidence on Minimum Wage Effects 17
2.1 The Data Source 18
2.2 Who Are the Minimum Wage Workers? 24
2.3 Impacts of Minimum Wage Changes on Wages 28
3 A Model of Minimum Wage Effects on Labor Market
Careers 35
3.1 Characterization of the Labor Market Career 38
3.2 The Stationary Labor Market Environment 41
3.3 The Decision-Theoretic Model 43
3.3.1 Nash-Bargained Employment Contracts 53
3.3.2 The Search-Bargaining Model luithout Minimum Wages 56
3.4 Bargaining with a Minimum Wage Constraint 61
3.5 The Labor Market Participation Decision 66
3.6 Endogeneity of the Rate of Contacts 67
4 Labor Market and Welfare Impacts of Minimum Wages 73
4.1 Minimum Wages and Labor Market Status 73
4.1.1 Minimum Wages and Unemployment 74
4.1.2 The Impact of Minimum Wage Changes on
Wage Distributions 80
4.2 Welfare Measures 82
4.2.1 General Welfare Criteria 82
4.2.2 Specific Welfare Measures 84
Minimum Wage Effects on Labor Market Outcomes:
A Selective Survey 95
5.1 Surveys of Empirical Studies of Minimum Wage Effects 96
5.2 Empirical Studies of "Large Impacts" and Methodological
Innovations 97
5.2.1 Pereira (2003) 97
5.2.2 Bell (1997) 100
5.2.3 Canipolieti et al. (2005) 101
5.2.4 Machin et al. (2003) 104
5.2.5 Dinardo et al. (1996) 105
5.3 Alternative Behavioral Frameworks 108
5.3.1 Meper and Wise (1983a, b) 108
5.3.2 Van den Ber^^ (2003) 110
5.3.3 Eckstein and Wolpin (1990) 111
5.3.4 Van den Birp and Bidder (1998) 113
Assessing the Welfare Impacts of Actual Changes in the
Minimum Wage 117
6.1 Results Using Unconditional Wage Distributions 119
6.2 Results for Conditional Wage Distributions 121
6.3 Results Using Matched Data 124
6.4 Welfare Impacts of the 1996 and 1997 Statutory Minimum Wage
Increases 125
6.4.1 Tests Utilizing Cross-sectional Wage Distributions 126
6.4.2 Tests Utilizing Panel Data 127
6.5 Data and Empirical Results 129
6.5.1 Cross-sectional Wage Distribution Results 131
6.5.2 Empirical Analysis Using the Matched CPS Sample 136
Econometric Issues 141
7.1 Identification of Choice-Theoretic Search Models 141
7.2 Estimation of the Bargaining Model 147
7.3 Model Identification 152
7.3.1 No Minimum Wage 153
7.3.2 Binding Minimum Wage 156
7.3.3 Some Additional Identification Devices 158
7.3.4 Use of Demand Side Information to Estimate a 159
7.4 Estimation of Demand Side Parameters 162
8 Model Estimates and Tests 167
8.1 Parameter Estimates Using Profit Information 169
8.2 Estimates of Demand Side Parameters and the Matching
Function 175
8.3 Model Fit 179
9 Optimal Minimum Wages 185
10 On-the-Job Search 195
10.1 Introduction 195
10.2 Model Specifications 198
10.2.1 The Model with Renegotiation 200
10.2.2 The Model without Renegotiation 207
10.2.3 Examples 208
10.3 Endogenous Contact Rates 212
10.3.1 Specification of the Matching Function with OT] Search 212
10.3.2 Labor Market Participation Decisions 215
10.4 Estimation Issues 216
10.5 Estimation Results 221
10.6 Optimal Minimum Wages with OT] Search 225
11 Heterogeneity 229
11.1 Introducing Heterogeneity into the Basic Search Model 230
11.2 Detecting Heterogeneity 237
11.3 Observed Heterogeneity 242
11.4 Unobserved Heterogeneity 244
11.5 An Extended Example 248
11.6 Implications of Heterogeneity for Equilibrium and Labor
Market Policies 255
11.6.1 General Equilibrium and Heterogeneity 256
11.6.2 Policy Implications 257
12 Conclusion 261
12.1 Theory 261
12.2 Limitations of the Modeling Framework 262
12.3 Empirical Findings and Lessons 264