The Mixed Effects of Minimum Wage in Imperfect Labor Markets

My dissertation's primary contribution is to explain and reconcile the heterogeneous effects of minimum wage on employment documented in the large strand of the literature on minimum wage. In the first chapter, I analyze the effects of minimum wages in developing countries using the enforcement of the law as a plausible explanation of the heterogeneous effects on employment across these countries. I construct a reliable indicator for the degree of enforcement by reading and organizing 82 developing countries' labor codes and quantifying penalties and enforcement degrees. I interact minimum wage changes with the degree of enforcement (grouped in none, weak, and strong enforcement) and estimate minimum wage effects in different enforcement settings. My main results are that the minimum wage has adverse effects on total employment in countries with strong enforcement. The second chapter explores the causes that explain the different effects of the minimum wage on employment using a meta-analysis of the minimum wage literature in developing countries. The main findings indicate that the heterogeneity is systematic, with estimated effects more consistently adverse in studies with relatively more features for which institutional factors and the competitive model more strongly predict negative effects. This chapter resulted in a publication by my chair David Neumark and me in the Journal World Development. Finally, the last chapter analyzes the effect of minimum wages under monopsonistic labor markets. In this chapter, I estimate the effects of the minimum wage for the U.S. under concentrated labor markets and low-mobility jobs (two variables that measure monopsony), identify heterogeneous effects among different scenarios derived from the monopsony model, and provide a plausible explanation of the mixed results about the minimum wage effects in the literature. My main findings indicate that minimum wages have an elasticity to teenage employment of -0.418 under perfect competition, which is, as expected, much higher than the expected results in the literature. The minimum wage has an insignificant positive effect between 0.04 and 0.29 under full monopsonistic labor markets. The results are consistent among different specifications and control for possible external shocks and omitted variables