Working Papers

Spatial Heterogeneity and Minimum Wages

Employment Estimates for Teens Using Cross-State Commuting Zones


Conventional approaches to estimating the effect of minimum wages on teen employment insufficiently account for heterogeneous employment patterns and selectivity of states with higher minimum wages. We overcome this problem by using policy discontinuities at state borders. Our estimates from cross-state labor markets (commuting zones) using data from the Census and the American Community Survey show that the measured negative impacts on teen employment in traditional estimates are driven by insufficient controls for spatial heterogeneity. We also replicate our key results using the Current Population Survey and show that the negative employment impact in traditional specifications is driven by pre-existing trends. Finally, by using a version of randomization inference, we devise a new test for heterogeneous effects of minimum wages across different local labor markets. We do not find evidence of such heterogeneous treatment effects using this new approach.