Credible Research Designs for Minimum Wage Studies: A Response to Neumark, Salas and Wascher

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Abstract
We assess the Neumark, Salas and Wascher (NSW) critique of our minimum wage findings. Recent studies, including one by NSW, obtain small employment elasticities for restaurants, -0.06 or less in magnitude. The substantive critique in NSW thus centers primarily upon teens. Using a longer (1979-2014) sample than used by NSW and in our own previous work, we find clear evidence that teen minimum wage employment elasticities from a two-way fixed-effects panel model are contaminated by negative preexisting trends. Simply including state-specific linear trends produces small and statistically insignificant estimates (around -0.07); including division-period effects further reduces the estimated magnitudes toward zero. A LASSO-based selection procedure indicates these controls for time-varying heterogeneity are warranted. Including higher order state trends does not alter these findings, contrary to NSW. Consistent with bias in the fixed-effects estimates from time-varying heterogeneity, first difference estimates are small or positive. Small, statistically insignificant, teen employment elasticities (around -0.06) obtain from border discontinuity design with contiguous counties. Contrary to NSW, such counties are more similar to each other than to other counties. Synthetic control studies also indicate small minimum wage elasticities (around -0.04). Nearby states receive significantly more weight in creating synthetic controls, providing further support for using regional controls. Finally, NSW’s preferred new matching estimates are plagued by a problematic sample that mixes treatment and control units, obtains poor matches, and shows the largest employment drops in areas with relative minimum wage declines.

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