State-Level Estimates of Minimum Wage Effects: New Evidence and Interpretations from Disequilibrium Methods

Research using state-level data to estimate minimum wage effects on employment follows the textbook treatment of minimum wages, assuming that minimum wages are binding and that labor markets are competitive. We present an alternative method of estimating minimum wage effects using similar data that relaxes these assumptions, using a disequilibrium approach. Applying this approach to the data and sample period used in many earlier state-level studies suggests that simple state-level reduced-form estimates of minimum wage effects on employment depend on the sample used, and may badly understate the disemployment effects of a binding minimum wage.