Seeing Beyond the Trees: Using Machine Learning to Estimate the Impact of Minimum Wages on Labor Market Outcomes

62 Pages Posted: 1 Feb 2021 Last revised: 6 Feb 2021

See all articles by Doruk Cengiz

Doruk Cengiz

University of Massachusetts at Amherst - College of Social and Behavioral Sciences - Department of Economics

Arindrajit Dube

University of Massachusetts Amherst

Attila Lindner

University College London - Department of Economics

David Zentler-Munro

University College London

Date Written: January 2021

Abstract

We assess the effect of the minimum wage on labor market outcomes such as employment, unemployment, and labor force participation for most workers affected by the policy. We apply modern machine learning tools to construct demographically-based treatment groups capturing around 75% of all minimum wage workers—a major improvement over the literature which has focused on fairly narrow subgroups where the policy has a large bite (e.g., teens). By exploiting 172 prominent minimum wages between 1979 and 2019 we find that there is a very clear increase in average wages of workers in these groups following a minimum wage increase, while there is little evidence of employment loss. Furthermore, we find no indication that minimum wage has a negative effect on the unemployment rate, on the labor force participation, or on the labor market transitions. Furthermore, we detect no employment or participation responses even for sub-groups that are likely to have a high extensive margin labor supply elasticity—such as teens, older workers, or single mothers. Overall, these findings provide little evidence for changing search effort in response to a minimum wage increase.

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Suggested Citation

Cengiz, Doruk and Dube, Arindrajit and Lindner, Attila and Zentler-Munro, David, Seeing Beyond the Trees: Using Machine Learning to Estimate the Impact of Minimum Wages on Labor Market Outcomes (January 2021). NBER Working Paper No. w28399, Available at SSRN: https://ssrn.com/abstract=3776969

Doruk Cengiz (Contact Author)

University of Massachusetts at Amherst - College of Social and Behavioral Sciences - Department of Economics ( email )

Amherst, MA 01003
United States

Arindrajit Dube

University of Massachusetts Amherst ( email )

Attila Lindner

University College London - Department of Economics ( email )

Drayton House
30 Gordon Street
London, WC1H 0AX
United Kingdom

David Zentler-Munro

University College London

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