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Welfare Reform on the Web (June 2009): Minimum Wage - overseas

Do higher real minimum wages lead to more high school dropouts? Evidence from Maryland across races, 1993-2004

S.O. Crofton, W.L. Anderson and E.C. Rawe

American Journal of Economics and Sociology, vol. 68, 2009, p.445-464

This study explores whether higher levels of the real minimum wage have differential effects on high school dropout rates across pupils of varying ethnicities in the USA (Whites, African Americans, Asians and Hispanics). Using a panel of data across Maryland counties and annual observations in 1993-2004, the research found higher real minimum wages to be associated with higher dropout rates for Hispanic pupils, but not for other ethnic groups. Two plausible sociological explanations for these findings are offered:

  • Hispanic pupils' dropout choices appear to be more responsive to a wider variety of economic influences than those of other ethnic groups
  • Hispanic pupils may expect to be paid an hourly wage (and perhaps the minimum wage) instead of holding a salaried job to a greater extent than students of other ethnicities.

Minimum wages

D. Neumark and W. Wascher

London: MIT Press, 2008

Minimum wages exist in more than one hundred countries, both industrialized and developing. The United States passed a federal minimum wage law in 1938 and has increased the minimum wage and its coverage at irregular intervals ever since; in addition, as of the beginning of 2008, thirty-two states and the District of Columbia had established a minimum wage higher than the federal level. Over the years, the minimum wage has been popular with the public, controversial in the political arena, and the subject of vigorous debate among economists over its costs and benefits. The book offers a comprehensive overview of the evidence on the economic effects of minimum wages. It discusses the effects of minimum wages on employment and hours, the acquisition of skills, the wage and income distributions, longer-term labour market outcomes, prices, and the aggregate economy. Arguing that the usual focus on employment effects is too limiting, it presents a broader, empirically based inquiry that will better inform policymakers about the costs and benefits of the minimum wage. It also argues that minimum wages do not achieve the main goals set forth by their supporters. They reduce employment opportunities for less-skilled workers and tend to reduce their earnings; they are not an effective means of reducing poverty; and they appear to have adverse longer-term effects on wages and earnings, in part by reducing the acquisition of human capital, therefore policymakers should look for other tools to raise the wages of low-skill workers and to provide poor families with an acceptable standard of living.

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