Labor Supply Substitution and the Ripple Effect of Minimum Wages
نویسنده
چکیده
This paper examines the potential causes of the “ripple effect” of minimum wages. This wage spillover is thought to result from labor demand substitution: where the rising minimum increases the demand for more-skilled workers who become relatively inexpensive. However, the rising minimum also affects the relative wages across hedonically distinct occupations because it lowers compensating wage differentials. Thus, the ripple effect may result from declining labor supply at hedonically undesirable occupations. Empirically, I combine panel data on individuals with occupation-level hedonic characteristics and provide evidence that the ripple effect is caused by labor supply substitution and not labor demand substitution. JEL CLASSIFICATION: J38, J31
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