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Demand for LaborThe Neglected Side of the Market$
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Daniel S. Hamermesh and Corrado Giulietti

Print publication date: 2017

Print ISBN-13: 9780198791379

Published to Oxford Scholarship Online: March 2017

DOI: 10.1093/acprof:oso/9780198791379.001.0001

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Minimum Wages and the Demand for Labor

Minimum Wages and the Demand for Labor

(p.137) 7 Minimum Wages and the Demand for Labor
Demand for Labor

Daniel S. Hamermesh

Oxford University Press

I formulate measures of the effective minimum wage and use these measures in reestimating some simple equations relating the relative employment of youths and adults to the U.S. minimum wage using aggregate data for 1954–78.I then ground the model in the theory of factor demand, first adding the relative wages of youths and adults to the equation describing their relative employment, and then specifying a complete system of demand equations. Teen employment responds quite robustly to changes in the effective minimum in these specifications, with an elasticity of −0.1. A translog cost function defined over young workers, adults, and capital shows that the effective minimum wage reduces employers’ ability to substitute other factors for young workers. A subminimum wage for youths would have increased their employment with at most a small loss of jobs among adults.

Keywords:   Employment effects, teen employment, subminimum wages, systems of factor demand, relative wages

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