Regional Studies, Vol. 33.8, pp.

713± 726

Do Minimum Wage Hikes Raise US Long Term

Unemployment? Evidence Using State Minimum
Wage Rates1
M AR K D. PA RT R ID G E * and JAM I E S. PA RT R ID G E ²
*Department of Economics, Stewart Hall, St Cloud State University, St Cloud, MN 56301-4498, U SA
² Department of Management, St John’s University/College of St Benedict, St Joseph, MN 56374, USA

(Received July 1998; in revised form March 1999)

P AR TR ID GE M. D. and P A RT RI D G E J. S. (1999) Do minimum wage hikes raise US long term unemployment? Evidence
using state minimum wage rates, Reg. Studies 33, 713± 726. Several recent studies have challenged the conventional notion that
raising the minimum wage reduces employment. This study considers a related but relatively unexplored issue by examining
the minimum wage’s in¯ uence on long durations of unemployment. By considering long term unemployment rates, this study
extends the previous minimum wage literature by examining the persistence of minimum wage eVects. The empirical analysis
considers state data from the latter 1980s, a unique period when many states raised their minimum wage above the federal level.
The results suggest that a greater minimum wage increases long term unemployment rates. Further evidence indicates that
increased minimum wage coverage also raises long term unemployment rates. Subsequent analysis yielded similar patterns for
other aggregate labour market measures. Thus, state and federal policy makers should weigh these potential costs in deciding
whether to increase minimum wage rates in the future.

Long term unemployment Minimum wage Minimum wage coverage Unemployment

P AR TR ID GE M. D. et P A RT RI D G E J. S. (1999) Les retom- P A RT RI D G E M. D. und P AR TR IDG E J. S. (1999) FuÈhren

beÂes des augmentations du salaire minimum sur le choÃmage
de longue dureÂe? Des preuves provenant des salaires mini-
mum aux Etats-Unis, Reg. Studies 33, 713± 726. Des eÂtudes
reÂcentes ont mis en question l’ideÂe recËue qu’une augmenta-
tion du salaire minimum entraõÃ ne une reÂduction de l’emploi.
Cette eÂtude-ci cherche aÁ consideÂrer un sujet connexe mais
relativement inexploreÂ; autrement dit, les retombeÂes du salaire
minimum sur le choÃmage de longue dureÂe. En examinant
les taux de choÃmage de longue dureÂe, cette eÂtude eÂlargit la
documentation anteÂrieure qui porte sur le salaire minimum
en consideÂrant la persistance des retombeÂes du salaire mini-
mum. On analyse des donneÂes qui proviennent de la ® n des
anneÂes 1980, une eÂpoque exceptionnelle ouÁ bon nombre des
eÂtats ont augmente leur salaire minimum au-dessus du niveau
feÂdeÂral. Les reÂsultats laissent supposer qu’un rencheÂrissement
du salaire minimum entraõÃ ne une hausse des taux de choÃmage
de longue dureÂe. Des preuves suppleÂmentaires laissent voir
qu’un accroissement de la proportion de smicards ameÁne
aussi aÁ une hausse des taux de choÃmage de longue dureÂe.
Une analyse ulteÂrieure a fourni des re sultats comparables
pour ce qui est des autres mesures globales du marche du
travail. Ainsi, les de cideurs, et au niveau de l’eÂtat et sur le
plan feÂdeÂral, devraient eÂvaluer ces couÃts potentiels au moment
ouÁ ils de cident si, oui ou non, il faudra augmenter les taux
de salaire minimum.
ChoÃmage de longue dureÂe Salaire minimum
Proportion de smicards ChoÃmage
Anhebungen von MindestloÈhnen in den Vereinigten Staaten
zu langfristigem Ansteigen der Arbeitslosigkeit? Beweise, die
sich auf staatliche Mindestlohnraten stuÈtzen, Reg. Studies 33,
713± 726. Verschiedene, kuÈrzlich veroÈ Ventlichte Unter-
suchungen stellten die herkoÈmmliche Meinung in Frage, daû
ein Anheben der MindestloÈhne zur Herabsetzung der Zahl
der BeschaÈftigten fuÈ hrt. Dieser Aufsatz zieht eine damit
verbundene, doch relativ selten untersuchte Frage in
Betracht, indem er den Ein¯ uû des Mindestlohnes auf lang
anhaltende Arbeitslosigkeit pruÈft. Mit Hilfe der langfristigen
Arbeitslosigkeitsraten erweitert die Studie durch Unter-
suchung der anhaltenden Auswirkungen von MindestloÈhnen
die Literatur uÈber MindestloÈhne. Die empirische Analyse
zieht oYzielle Datan der spaÈten achtziger Jahre heran, einer
einmaligen Periode, insoweit als viele Staaten ihre Min-
destloÈhne uÈber die auf Bundesebene gezahlten anhoben. Die
Ergebnisse legen nahe, daû ein hoÈherer Mindestlohn zum
Ansteigen der langfristige Arbeitslosenraten fuÈhrt. Weitere
Beweise lassen erkennen, daû vermehrte Mindestlohn-
deckung auch langfristige Arbeitslosigkeitsraten anhebt. Die
anschlieû ende Analyse ergab aÈhnliche Muster fuÈr andere, den
Gesamtarbeitsmarkt umfassende Maû nahmen. Auf staatlicher
wie auf bundesstaatlicher Ebene sollten politische Entschei-
dungen deshalb diese potentiellen Kosten mit in Betracht
ziehen, wenn sie zukuÈnftige Anhebungen von Min-
destloÈhnen erwaÈgen.
Langfristige Arbeitslosigkeit Mindestlohn
Mindestlohndeckung Arbeitslosigkeit

0034-3404/99/080713-14 ©1999 Regional Studies Association

714 Mark D. Partridge and Jamie S. Partridge
I N T RO D UC T I O N
Since its original enactment in the 1930s, federal mini-
mum wage increases have been viewed by many as an
eVective avenue to redistribute income and reduce
poverty (F R EE M A N , 1996) as well as to provide a
`living wage’ (K U T T NER , 1997). Given that in¯ ation
erodes the purchasing power of a ® xed minimum wage,
every few years there are calls for further increases.
With US income inequality rising since the 1970s, the
policy implications of minimum wage hikes are even
more signi® cant. In fact, many economists have argued
that the declining purchasing power of the minimum
wage since the 1970s can account for about 30% of
the ensuing increase in earnings dispersion (F O R T I N
and L E M I EU X , 1997).
Yet, economists have traditionally cautioned that
raising the wage ¯ oor has deleterious consequences
including additional unemployment, reduced general
training and oVsetting reductions in fringe bene® ts.
B R O WN et al.’s, 1982, survey of the literature indicated
that a 10% increase in the minimum wage would on
average reduce teen employment by 1± 3%, raise teen
unemployment rates by 0± 0´75%, with smaller eVects
for adults. Such negative eVects temper the desired
redistribution. None the less, US economists rarely, if
at all, discuss minimum wage eVects on unemployment
duration.
Regardless, as F R EE MA N , 1995, notes, it is possible
that minimum wage legislation can create a class of
permanent outsiders who cannot obtain employment,
even though they would be willing to work at a rate
below the minimum wage. In fact, S I E B ER T, 1997,
contends that high minimum wage rates are a key
factor behind high levels of structural and long term
unemployment in Europe. Yet, the possibility that
minimum wage hikes increase long term unemployment
is a relatively unexplored topic for the US. However,
C L A R K and S U M M ER S , 1990a, ® nd that most jobless-
ness in the US is composed of a hard core group of
unemployed who are jobless for more than six months,
even though the typical person exits unemployment
rather quickly (less than three months). It seems plaus-
ible that members of this hard core group would be
potentially susceptible to job loss due to minimum
wage hikes, while ® nding a new job would be more
diYcult.2 Therefore, this study will investigate the
impact of state minimum wage laws on the prevalence
of long term unemployment (de® ned as greater than
26 weeks).
One reason for the lack of emphasis on US long
term unemployment is that is has been viewed as a
relatively small problem. However, this may be chang-
ing. The growing importance of long term unemploy-
ment in the US can be seen by noting that, between
1992± 94, the (annual) share of unemployed workers
who had sought employment for more than 26 weeks
exceeded 20%, where the 20% ® gure was topped in
only one other year since World War Two (1983)
(P A R T R I D G E and R I CK M A N , 1998). Longer durations
of unemployment likely reinforced the seemingly high
levels of job anxiety felt by workers during the 1990s
(see A A R O NS O N and S U L L I V A N , 1998, for more
details of this anxiety). By comparison, the share of
long term unemployed in total unemployment was less
than 10% in the latter 1980s. This raises an interesting
question: did the 1990± 91 increase in the federal mini-
mum wage contribute to longer durations of un-
employment? In addition, the onset of federal welfare
reform means that states will carry a greater share of
the income redistribution burden. One implication is
that state policy makers may feel pressure to boost their
minimum wage to lift poor families out of poverty.
Given that many chronic welfare recipients can also be
viewed as outsiders, the relationship between long term
unemployment and state minimum wage rates may
shed light on this topic as well.
In what follows, the next section sketches some
simple minimum wage models. The third section dis-
cusses empirical implementation and the fourth section
discusses the results. In addition, section ® ve will con-
sider the in¯ uence of state minimum wage rates on
aggregate unemployment rates. This additional analysis
will examine the robustness of the long term un-
employment rate results and will be of interest in their
own light. The ® nal section presents some concluding
thoughts.
T H E M I NI M UM WA G E A N D T H E
L A B O UR M A RK E T
The need to better understand all minimum wage
eVects is highlighted by a possible breakdown in the
consensus among economists regarding the minimum
wage during the 1990s. Foremost is a series of cross-
sectional and case studies by C A R D and K R U E G ER
(e.g. 1992, 1994, 1995) which found that the 1990± 91
increase in the federal minimum wage had virtually no
impact on employment. Similarly, D I C K ENS et al.,
1999, and M A CH I N and M A NN I NG , 1994, found no
negative minimum wage eVects for UK employment.
However, recent ® ndings that minimum wage hikes
have very little eVect on employment have not gone
unchallenged. For example, using a variety of data sets
and techniques, N EU M A R K and W A S C H E R , 1992,
1994; D E ER E et al., 1995; K I M and T A Y L O R , 1995;
C U R R I E and F A L L I C K , 1996; and P A R T R I D G E and
P A R T R I DG E , 1999, have found that increases in the
minimum wage reduce employment, while P A R T -
R I D G E and P A R T R I DG E , 1998, found that they
increase teen unemployment rates.
Given the con¯ icting minimum wage ® ndings in the
literature, it is not surprising that there are numerous
models of how minimum wage legislation aVects the
 Do Minimum Wage Hikes Raise US Long Term Unemployment?
labour market (e.g. see M I NC ER , 1976; B R O WN et al.,
1982; C A R D and K R U E G ER , 1995). It is not possible
to do a complete survey, but it is useful to outline some
of the major themes in these models.
The standard minimum wage model is the basic
supply and demand model. In its simplest form, impos-
ing a wage ¯ oor above the equilibrium wage reduces
the quantity of labour demanded while inducing new
entrants into the labour market. Two outcomes are an
increase in the unemployment rate and a reduction in
employment. However, real world complexities
complicate the analysis. First, minimum wage coverage
is incomplete. A greater minimum wage may induce
workers from the uncovered sector to queue for jobs in
the covered sector, while previously employed workers
from the covered sector may be forced to ® nd work in
the uncovered sector. Moreover, some workers may be
so discouraged by diminished employment chances that
they exit the labour force (and hence are not counted
as oYcially unemployed). Further complicating the
analysis is that ® rms may reallocate their shares of full-
and part-time labour (R E S S L ER et al., 1996) such that
employment changes do not accurately re¯ ect actual
changes in total labour inputs (W EL C H , 1995). Finally,
® rms may substitute more skilled labour for less skilled
labour, which further confounds the eVects on total
employment.
The monopsony labour market model has recently
received attention in the minimum wage debate
(C A R D and K R U E G ER , 1995). In this case, if an
employer is (labour) supply constrained, minimum
wage increases can yield employment gains. Card and
Krueger contend that information imperfections and
mobility costs make the monopsony model applicable
in low wage labour markets. However, many econom-
ists question the general applicability of the monopsony
model in the typical labour market.
Therefore, the employment outcome of increasing
the minimum wage is hard to predict. Standard models
generally imply a reduction in the number of labour
hours, but not necessarily total employment, while a
monopsony model can imply the opposite. The relative
size and substitution elasticities in the covered and
uncovered sector further confound employment pre-
dictions. Changes in total employment are also compli-
cated by changes in the prevalence of part-time
employment and average hours of work as well as
changes in skill intensities. Likewise, the quantity of
labour supplied may increase if new workers are
induced by the greater wages, or decrease if workers
become discouraged and exit the labour force. Thus,
unemployment rates may not necessarily increase.
However, if workers from the uncovered sector queue
for employment in the covered sector, these search
costs add to the social waste of increasing the minimum
wage (M I NC E R , 1976). One implication is that, in
determining the impact of minimum wage laws, it is
not clear whether examining employment changes is
715
superior to examining changes in unemployment rates
(or vice versa), suggesting a need to consider all labour
market indicators.
Standard labour market theory also suggests that a
greater minimum wage can increase long term un-
employment. That is, if less skilled workers with a low
value of marginal product (with realistic reservation
wages) cannot be oVered a wage below the minimum
wage by employers, their probability of receiving a job
oVer will diminish and their duration of unemployment
will increase. Using 1988 as a representative year for a
stylistic example, the median duration of unemploy-
ment was 5´9 weeks, roughly corresponding to a cons-
tant 0´11 weekly hazard rate for exiting unemployment.
Suppose that a higher minimum wage slightly reduces
this to 0´10. This modest change would increase the
probability by one-third that an individual’s unemploy-
ment spell would last at least 26 weeks, which is
consistent with long term unemployment rates being
more cyclically responsive than short term unemploy-
ment rates (C L A R K and S U M M ER S , 1990a). Moreover,
if there is negative duration dependence where the
hazard rate declines over time, a minimum wage
increase would further raise the chance of a long
unemployment duration.3 Also, T H OM A S , 1996, ® nds
that the length of unemployment spells is negatively
related to the previous job’s wages. This suggests that
low skilled, low wage workers are even more susceptible
to longer unemployment durations. Since these lower
skilled workers are the very people minimum wage
hikes are hoped to bene® t, greater unemployment
duration seems especially counter to the policy goals.
A key advantage of considering the long term un-
employed is that it seems much less likely that a potential
worker induced into the labour market, by say a 10%
minimum wage increase, would remain in the labour
force for more than six months without a job (i.e.
continuously searching for work for such a small gain).
That is, any increased long term unemployment should
be almost entirely concentrated among those who
would have been in the labour force without a mini-
mum wage hike.
Despite the above discussion, the minimum wage
may have very little in¯ uence on long term unemploy-
ment if industries that employ a disproportionate share
of minimum wage workers have almost no unemploy-
ment to begin with. However, using 1988 Bureau of
Labor Statistics data, this does not appear to be the
case. The overall 1988 unemployment rate was 5´5%.
Yet, in retail, where over one-half of minimum wage
workers are concentrated (S M I T H and V A VR I C H E K ,
1992), the unemployment rate was 6´1%. It was an
even higher 8´9% for eating and drinking establishment
workers, which is where retail sector minimum wage
workers are especially concentrated. Relatively high
unemployment rates are found in other industries
where the minimum wage is relatively important:
apparel, 8´1%; food and kindred industries, 8´2%; and
716 Mark D. Partridge and Jamie S. Partridge
private household services, 6´8%. Hence, unemploy-
ment rates are relatively high in industries where the
minimum wage plays a key role, suggesting that mini-
mum wage increases can, in turn, extend unemploy-
ment durations. Conversely, older displaced workers
would appear unlikely to be in¯ uenced by minimum
wage increases. Yet, even here, because displaced
workers earn about 25% less on average up to ® ve years
after displacement ( J A CO B S O N et al., 1993), minimum
wage rates may in¯ uence displaced workers who are in
the tail of the wage loss distribution.4
Since we will examine variations in minimum wage
laws caused by state legislation, not federal legislation,
there are other conceptual considerations when making
predictions. Foremost, there is little incentive for ® rms
or households to relocate or migrate in response to
federal minimum wage changes because there are no
cross-state variations. However, state minimum wage
changes can create incentives for cross-state ® rm and
household relocation, as well as aVect the likelihood of
® rm births and deaths. One implication is that mini-
mum wage responses driven by state legislation may be
larger than if we were examining the responses due to
federal changes. Another implication is that potential
® rm and household movements (or ® rm births and
deaths) may occur after a lag, suggesting that state
minimum wage responses will be more drawn out.
E M P I RI C A L M O D E L
Our empirical methodology will be similar to
N E U MA R K and W A S C H ER ’s, 1992, use of cross-state
diVerences in minimum wage levels and coverage, while
correcting for many of the empirical criticisms levelled
by C A R D et al., 1994; and C A R D and K R U EG E R ,
1995. Yet, the major diVerence between this study and
most other minimum wage studies (including Neumark
and Wascher) is that this study does not consider
teen employment. That is, by considering long term
unemployment rates, this study extends the minimum
wage literature.
For the purposes of this study, long term unemploy-
ment is de® ned as being unemployed for more than
26 weeks. Hence, the long term unemployment rate is
de® ned as the number of individuals unemployed for
more than 26 weeks divided by the total labour force as
de® ned by the Current Population Survey (CPS).5 One
trait of CPS data is that unemployment rates are derived
from ongoing spells of joblessness. For example, some
of the short term unemployed may eventually become
long term unemployed or already would be long term
unemployed if they had continuously remained in the
labour force. Another implication is that the long term
unemployed may disproportionately exit the labour
force by discontinuing their job search. These examples
tend to mean that potential increases in long durations
of non-employment due to minimum wage laws would
be understated by our long term unemployment measure
(e.g. see C L A R K and S U M M ER S , 1990a, regarding the
relationship between non-employment and unemploy-
ment spells). Another feature of our long term un-
employment rate measure is that, to be considered long
term unemployed, a jobless worker must continuously
search for work for six months, which means that we
are focusing on individuals who are the most attached
to the labour force. Thus, a rise in our long term
measure suggests that at least a portion of the labour
force (who are quite attached) has experienced rather
signi® cant increases in search costs and other costs. In
later analysis, we will also consider more aggregate
unemployment, employment/population, and labour
force participation rates to examine the robustness of
the long term unemployment results.
Regardless of whether the competitive model or the
monopsony model primarily applies, the unemploy-
ment rate is determined by the interaction of labour
supply and labour demand in each state. Our empirical
speci® cation will re¯ ect a reduced form model of
these relationships. Factors that increase labour demand
should reduce unemployment rates, while factors
associated with an increase in labour supply should
increase the unemployment rate. Although there are
modest diVerences, the empirical speci® cation is gener-
ally consistent with N EU M A R K and W A S C HE R ’s,
1992, 1994, and D EER E et al.’s, 1995, state-level exam-
ination of minimum wage hikes and it is consistent with
P A R T R I DG E and R IC K M A N ’s, 1995, 1997, analysis of
state-level unemployment.
The data set covers the 48 contiguous states over the
1984± 89 period. Data from the late 1980s has sub-
stantial advantages in sorting out the impact of mini-
mum wage hikes. For example, W E L C H and
C U NN I N G H A M , 1978, p. 144, noted that high rates of
federal minimum wage coverage along with the rela-
tively high federal minimum wage rate empirically
swamped any variation in state minimum wage laws in
1970. This changed in the late 1980s when many states
raised their minimum wage in response to the federal
minimum wage remaining unchanged between 1981
and 1990. The result is that only one contiguous state
had a minimum wage above the federal level in 1984
(Connecticut), while this increased to 13 states by 1989
(along with Alaska, District of Columbia and Hawaii).
This yields both time-series and cross-sectional vari-
ation in minimum wage levels. However, in April 1990,
the federal minimum wage increased from $3.35 to
$3.80, greatly reducing cross-sectional variation.6 Like-
wise, the 1984± 89 period was a period of national
economic expansion, while 1990 represented the
beginning of a national recession, which can confound
the estimates.
The variables are described below while the data
sources are fully detailed in Table 1. Note that one
advantage of the data is that they are based on annual
averages. Conversely, Neumark and Wascher’s data
were based only on May CPS estimates, where small
 Do Minimum Wage Hikes Raise US Long Term Unemployment?
sample sizes for less populated states can introduce
variable measurement error, which may have signi® -
cantly aVected their results (C A R D et al., 1994).
The basic speci® cation for state s in year t is:
LOUTCOMEst5 bLMINWAGEst
1 aLCOVERAGEst 1 pLWAGEst
1 d INDMIX EMP GROWTHst
1 F AGEst 1 ss 1 s t 1 est (1)
where: LOUTCOME is the log of the labour market
outcome of interest; LMINWAGE is a vector of log
minimum wage variables; LCOVERAGE is the log
share of the state’s non-supervisorial labour force
covered by federal minimum wage legislation; LWAGE
is the log average hourly manufacturing production
worker wage; IND MIX EMP GROWTH is the state’s
employment growth rate if all its industries grew at the
national growth rate; AGE is a vector of demographic
age groups; ss is the state ® xed eVect; s is the year
® xed eVect; e is the residual term. b, a, p, d , and F
are coeYcient vectors. The state ® xed eVects control
for unmeasured factors that in¯ uence each state’s labour
market. One primary factor accounted for by the state
® xed eVects is the possibility that states which raised
their minimum wage were systematically diVerent than
the other states. The year ® xed eVects account for
national economic and demographic factors that have
a common eVect across all states. Following D E ER E
et al., 1995, the base speci® cation will be in double-
log form for the variables of interest (see below).
The proper minimum wage measure is in some
dispute. In this regard, N E U MA R K and W A S CH E R ,
1992, used a state-level Kaitz index. The Kaitz index is
the product of the share of the state’s non-supervisorial
workforce covered by the federal minimum wage with
the maximum of the federal or the state minimum
wage rate divided by the average hourly wage. This
measure has the advantage of adjusting for variation in
state minimum wage coverage. However, one assump-
tion behind the Kaitz index is that a 10% increase in
minimum wage coverage has the identical eVect of a
10% increase in the nominal minimum wage rate as
well as the exact opposite eVect of a 10% increase in
the average wage. N E UM A R K and W A S C H ER , 1994,
acknowledge that there is no basis for this restriction,
although intuitively the minimum wage should be less
binding in high wage states or in states with lower
coverage. Yet, C A R D et al., 1994, found that Neumark
and Wascher’s Kaitz index was negatively related to teen
wage rates, suggesting that it is a poor wage measure.
Card et al., argued that this problem was caused when
states that had more economic growth also had higher
overall average wage rates and greater teen employ-
ment. This can create a spurious negative correlation
between the Kaitz index and teen employment. Card
717
et al. contended that instead of a Kaitz index, it is
better to use the minimum wage rate itself or the
fraction of workers aVected by a minimum wage
increase.7
Hence, the log of the maximum of the state or
federal minimum wage is used as the minimum wage
measure.8 Other advantages of directly using the mini-
mum wage include easier interpretation and less
measurement error. Many researchers only include the
contemporaneous minimum wage rate because mini-
mum wage jobs are perceived to have high turnover
rates (especially for teens ± see B R OW N et al., 1982).
However, we include the lag minimum wage rate for
several reasons. First, it may take time for employers to
substitute more skilled for low skilled labour or substi-
tute capital for low skilled labour (N E U M A R K and
W A S C H ER , 1992, 1994). For example, B R O WN ,
1995, and H A M E R M ES H , 1995, contend that C A R D
and K R U EG E R , 1995, did not ® nd these negative input
substitution eVects on employment because they likely
take more than a year to develop, which is longer than
Card and Krueger allowed.9 Second, as noted earlier,
it may take additional time to realize the adverse state-
level ® rm and household relocation eVects after a state
minimum wage increase (including fewer ® rm births
and more ® rm deaths).
Third, because we are using incomplete unemploy-
ment spells, the previous year’s minimum wage may
play a role in extending the duration of unemployment
and increasing the current year’s long term unemploy-
ment rate. That is, if a worker loses his/her job, it
would take at least six months of unemployment to
aVect the long term unemployment rate, greatly
reducing the contemporaneous minimum wage eVect.
Moreover, note that the minimum wage is measured
as an annual average (see note 8). States often increased
their minimum wage rate eVective after 30 June. This
means that almost all the long term unemployment rate
eVects would be delayed into the next year.
Generally, the competitive model suggests positive
minimum wage coeYcients, while a (supply con-
strained) monopsony model would generally predict
negative (or zero) coeYcients. However, the eVects
just described suggest that the lagged minimum wage
coeYcient will more likely be positive than the con-
temporaneous minimum wage eVect. Further, as dis-
cussed in more detail below, N EU M A R K and
W A S C H ER , 1992, 1994; and P A R T R I DG E and P A R T -
R I D G E , 1998, 1999, ® nd results that are consistent
with state policy makers considering current economic
conditions in their minimum wage rate decision. Spe-
ci® cally, state policy makers may be more likely to
increase the minimum wage when they believe good
economic conditions in the near term will oVset any
adverse minimum wage eVects.10 For example, in the
latter 1980s, state minimum wage hikes were concen-
trated in the Northeast and along the Paci® c Coast, or
states that greatly bene® ted from the Reagan defence
718 Mark D. Partridge and Jamie S. Partridge
build up. In fact, this cyclical eVect suggests that the
contemporaneous minimum wage coeYcient may be
negative, further suggesting that our results understate
the minimum wage in¯ uence on long term unemploy-
ment rates.
Minimum wage coverage is incomplete due to
exemptions for industry and ® rm size (which leads to
cross-state variation). B R O WN et al., 1982; and
B R O WN , 1988, strongly argue for coverage’s inclusion
because of its importance in the standard model,
although C A R D and K R U EG E R , 1995, downplay its
importance. Therefore, the log of federal coverage of
minimum wage laws at the state level is also included
in the speci® cation. It would be optimal to also include
binding minimum wage coverage rates due to state
laws, but such data are unavailable for our sample
period. None the less, our state-level coverage data
signi® cantly improve on the coverage data used by
N E U MA R K and W A S C HE R , 1992, 1994. Due to data
availability at the time of Neumark and Wascher’s study,
coverage data were unavailable for many years of their
sample, most notably 1987 to 1989. However, we have
obtained coverage estimates for every year of our
study.11 This is fortunate because the US Department of
Labor ceased publishing state-level estimates of federal
minimum wage coverage after 1990.
The natural log of the average production worker
wage is included in the model. As indicated when
discussing the Kaitz index, a minimum wage should be
less of a constraint in states with a relatively high
wage structure (suggesting a negative average wage
relationship with long term unemployment). More-
over, C A R D and K R U EG E R , 1995, noted that the
price of a substitute should be included in the model,
where they also used average production worker hourly
wage (p. 185, p. 199). None the less, the production
worker wage is likely to be endogenously related to
the state’s cyclical conditions (F R EEM A N , 1982), sug-
gesting that a reduced form model that omits produc-
tion worker wages would provide more accurate
estimates (where the state ® xed eVects would capture
persistent wage level eVects). Below, we will also use
the average private sector hourly wage to consider the
robustness of our wage measure choice, although this
measure is probably even more endogenous than pro-
duction worker wages.
Estimating minimum wage eVects can be confoun-
ded if the state’s cyclical conditions are not adequately
controlled for (C A R D et al., 1994). D EE R E et al., 1995,
criticized C A R D ’s, 1992, cross-state analysis for not
accounting for low wage Sunbelt states (where the
federal minimum wage was most binding) growing
faster than the national average in 1990 and 1991. This
can make it appear as though the increased federal
minimum wage had no negative employment eVects
on these states.12 Similarly, the analysis by D E ER E et al.,
1995, of 1985± 92 state-level employment was criticized
for only controlling for cyclical eVects with the overall
state male employment rate (K U T T N ER , 1997). That
is, Deere et al. attributed the eVects of the 1990± 91
federal minimum wage increase to year dummy
coeYcients for 1990, 1991 and 1992. Yet, if the (lower-
skilled) demographic groups examined by Deere et al.
have greater cyclical variations in their employment
rates, the male employment ratio may inadequately
account for the eVects of the 1990± 91 recession
(K U T T NE R , 1997). Hence, their 1990± 92 year indi-
cators may be capturing cyclical eVects and overstating
the negative impacts of the minimum wage hike.
Finding suitable cyclical controls is diYcult because
unemployment and cyclical conditions are jointly
determined. Thus, as a labour demand shifter, we use
the (two-digit level) private sector, non-farm industry
mix employment growth rate from shift-share analysis
(P A R T R I D G E and R I C K MA N , 1995). The industry
mix employment growth rate re¯ ects how much the
state’s employment would grow if all its industries grew
at their respective national growth rates, i.e. it measures
whether the state has a mix of fast or slow growing
industries. Given that national industry growth rates
are determined primarily at the national level, industry
mix employment growth should not be endogenous.
In fact, B A R T I K , 1991, and B L A N CH A R D and K A T Z ,
1992, used it as an exogenous instrument in their
regional economic analysis. Indeed, P A R T R I D G E and
R I C K M A N , 1995, 1997, found that industry mix
employment growth is strongly related to state un-
employment rates, where its coeYcient re¯ ects any
multiplier eVects from national demand shifts. More-
over, among other things, the state ® xed eVects control
for persistent growth diVerences across states, such as
rapid growth in the sunbelt. Finally, the year ® xed
eVects account for national cyclical (or demographic)
trends common across all states.
The potential labour supply of groups that dispropor-
tionately compose minimum wage earners is included
in the model. Minimum wage earners are primarily
teens, young adults and older workers (over 55)
(M EL L O R , 1987; S M I T H and V A V R I C HE K , 1992).
Thus the model includes the share of the state’s popula-
tion between 15 and 19 years old; 20 and 24 years old;
55 and 64 years old; and 65 and older.
E M P I RI C A L RE S ULT S
Table 1 presents the (unweighted) descriptive statistics
used in the empirical model. For example, the average
state long term unemployment rate was 0´91%, the
average total unemployment rate was 6´3%, while 85%
of non-supervisorial employees were covered by federal
minimum wage legislation.
In 1989, 13 of the contiguous states had a minimum
wage above the federal rate of $3.35. In these 13 states
(not shown), on average only 0´33% (s.d.5 0´12) of the
labour force was unemployed for more than 26 weeks,
while the total average unemployment rate was 4´4%
 Do Minimum Wage Hikes Raise US Long Term Unemployment? 719
Table 1. Descriptive statistics for the 48 contiguous states, model shown in equation (1), while columns (2)± (6)
1984± 891 contain alternative speci® cations.
Mean (Std dev)
In column (1), the contemporaneous eVect from
raising the minimum wage is negative and statistically
Long term total unemployment rate 0´91 signi® cant, but this is more than oVset by the positive
(GPE U) (0´69) and statistically signi® cant lag eVect.13 As described
Total unemployment rate 6´3
(GPE U) (2´1) above, one possible reason for this dynamic pattern is
Male unemployment rate 6´2 that states which raised their minimum wage did so
(GPE U) (2´2) because they were more likely to experience higher
Female unemployment rate 6´5 economic growth. Such a tendency would result in a
(GPE U) (2´1) negative (contemporaneous) relationship between the
Total employment/population 62´0
(GPE U) (4´6) minimum wage and the long term unemployment rate,
Total labour-force/population 66´1 where standard eVects would occur after a lag. Also,
(GPE U) (3´8) since the long term unemployed must be out of work
Minimum wage2 3´39 for at least six months, negative minimum wage eVects
(MLR) (0´12) would be further delayed. This would mean that our
Minimum wage coverage ratio 0´85
(MWMH) (0´05) contemporaneous estimate understates any unemploy-
Production worker hourly wage 9´66 ment increases that result from raising the state mini-
(EE) (1´24) mum wage. Conversely, this pattern could be consistent
Average private sector hourly wage 9´21 with C A R D and K R U E G ER ’s, 1995, monopsony
(GPEU, WE) (1´28)
model with mobility costs and search frictions playing
Industry mix employment growth 0´030
(BEA) (0´012) a strong role in the short run (D I C K EN S et al., 1999)
Share 15± 19 0´077 but with the standard model dominating over time.
(U SDC) (0´005) Summing the minimum wage coeYcients results in
Share 20± 24 0´079 an elasticity point estimate of 1´81. Yet, the F-test
(U SDC) (0´007)
reported at the bottom of Table 2 shows that we can
Share 55± 64 0´089
(U SDC) (0´008) reject the null hypothesis that the sum of the two
Share 65 1 0´125 minimum wage coeYcients equals zero at only the
(U SDC) (0´018) 17% level ( p5 0´166), suggesting that caution should
N 288 be exercised in interpreting the results. Two possible
Notes: 1. The sources are listed in parentheses: B EA, Bureau of causes of this imprecision are that state-level long term
Economic Analysis; USDC, US Department of Commerce, unemployment duration is measured with error in the
Bureau of the Census, Current Population Survey Data; CPS and endogeneity of average wages.
MWMH, US Department of Labor, Minimum Wage and Using the estimated minimum wage elasticity of
Maximum Hours Under the Fair Labor Standards Act; EE, US
Department of Labor, Employment and Earnings, States and
1´81, a 27% increase in the minimum wage (which
Areas; GPEU, US Department of Labor, Geographical Pro® le equals the federal increase between 1990 and 1991)
of Employment and Unemployment; MLR, US Department would increase the average state long term unemploy-
of Labor, Monthly Labor Review, January issues; WE, US ment rate to about 1´35% when evaluated at the
Department of Labor, Wage and Earnings, Annual Averages. 1984± 89 sample mean long term unemployment rate
2. The minimum wage is the maximum of the state and
federal minimum wage rates.
of 0´91% (or by about one-half ). For comparison, the
1989 national long term unemployment rate was only
0´52% of the labour force, while the average 1992± 94
(s.d.5 0´8). For the other 35 states the respective un- long term unemployment rate averaged about 1´38%.
employment rates were 0´57% (s.d.5 0´32) and 5´4% These results suggest that the federal minimum wage
(s.d.5 1´36). This pattern is in accord with Card and increase of 1990± 91 contributed to the increase in long
Krueger’s claim that modestly raising the minimum term unemployment in the ® rst half of the 1990s, but
wage has little if any negative consequences on labour note that these estimates are measured with some
market opportunities. None the less, as noted above, imprecision. Yet, bear in mind that national level
there could be other factors behind this relationship, responses are likely smaller than responses at the state
for which we turn to the regression analysis to sort out level.
the causal eVects. Regarding minimum wage coverage, the results in
column (1) indicate that its coeYcient is positive and
statistically signi® cant at the 7% level. In fact, the
magnitude of the coverage estimate is rather large,
Long term unemployment
suggesting that C A R D and K R U EG E R , 1995, were too
Table 2 contains several alternative regression speci® ca- quick to ignore coverage’s eVect. A ® ve percentage
tions using the log of the long term unemployment point increase in minimum wage federal coverage
rate as the dependent variable. Column (1) re¯ ects the would raise the average long term unemployment rate
720 Mark D. Partridge and Jamie S. Partridge
Table 2. Log long term unemployment rate regression results (absolute value of t-statistics) 1
(1) (2) (3) (4) (5) (6)
Log(minimum wage) 2 2´93 2 2´99 2 0´57 2 3´04 2 2´89 2 2´90
(3´45) (3´65) (0´68) (3´19) (3´39) (3´35)
Log(minimum wage)t2 1 4´74 4´79 5´72 4´65 5´02
(2´69) (2´88) (3´09) (2´62) (2´79)
Log(minimum wage coverage) 3´42 5´55 3´08 2´22 3´16
(1´84) (2´79) (1´64) (1´20) (1´80)
Log(minimum wage coverage)t2 1 0´66
(0´57)
Log(production hourly wage) 2 1´52 2 2´35 1´70 2 1´44 2 1´60
(1´51) (1´95) (2´29) (1´41) (1´50)
Log (production hourly wage)t2 1 3´59 3´00 3´59 3´28
(3´59) (2´73) (3´59) (3´15)
Industry mix employment growth 2 15´07 2 15´81 2 15´21 2 16´33 2 14´91 2 15´54
(2´62) (2´22) (2´81) (2´85) (2´56) (2´71)
Share 15± 19 43´27 54´56 49´20 44´02 40´83
(2´63) (3´16) (3´06) (2´65) (2´41)
Share 20± 24 2 88´04 2 77´30 2 74´68 2 86´86 2 92´13
(5´58) (4´95) (5´02) (5´32) (5´95)
Share 55± 64 2 34´26 2 23´17 2 23´89 2 34´69 2 26´27
(1´72) (1´14) (1´21) (1´75) (1´32)
Share 65 1 2 38´11 2 42´57 2 41´91 2 38´28 2 36´56
(2´46) (2´67) (2´70) (2´47) (2´37)
Year ® xed eVects Y Y Y Y Y Y
State ® xed eVects Y Y Y Y Y Y
R2 0´89 0´87 0´88 0´89 0´89 0´89
F-stat: bMWt 1 bMW(t2 1) 5 02 1´93 1´83 4´66 1´81 2´67
( p5 0´166) ( p5 0´177) ( p5 0´032) ( p5 0´180) (p5 0´104)
F-stat: Kaitz restriction3 2´15 4´16
(p5 0´119) ( p5 0´017)
F-stat: Lag Kaitz restriction3 6´90
(0´001)
Autocorrelation q 4 0´114 0´181 0´122 0´140 0´113 0´114
N 288 288 288 288 288 288
Minimum wage coverage elasticity 3´42 5´55 3´08 2´22 3´82 n.a.
Minimum wage elasticity 1´81 1´80 2 0´57 2´68 1´76 2´12

Notes: 1. The t-statistics use the White correction for heteroscedasticity. Long term unemployment is de® ned as an unemployment duration
longer than 26 weeks.
2. The F-statistic for the null hypothesis that the sum of the minimum wage rate coeYcients equals zero.
3. The Kaitz restriction is that the coeYcient on the minimum wage variable equals both the coeYcient on the coverage variable and
the negative of the coeYcient on the average wage variable.
4 The ® rst-order autocorrelation of the within-state residuals.

to 1´07% when evaluated at the sample mean of 0´91%
(or by over one-sixth). This again supports the argu-
ment that minimum wage laws can increase long term
unemployment.
By not including the age controls, the model in
column (2) examines the sensitivity of the ® ndings to
accounting for the supply side controls. The results
indicate that the coverage variable’s magnitude and
statistical signi® cance improved in this case (1% level),
while the minimum wage results are substantially
unchanged.
The model in column (3) shows the results when
the lagged minimum wage variable is omitted from the
base model in column (1). In this case, the contempor-
aneous minimum wage coeYcient is negative and
statistically insigni® cant, which is not surprising given
that it takes at least six months before long term
unemployment rates would be aVected. Foremost, this
pattern suggests that the lagged minimum wage variable
plays an integral role in detecting the conventional
unemployment outcome (as suggested by N E UM A R K
and W A SC H E R , 1992, 1994).
One of the reasons that the average production
worker wage is included in the base model is that it is
a measure of the degree to which the minimum wage
is a binding constraint in the state’s labour market. Yet,
this likely introduces bias when production worker
wages are endogenous. By omitting production worker
wages, the model in column (4) re¯ ects a reduced form
speci® cation. These results suggest that the sum of the
minimum wage coeYcients is signi® cant at about the
3% level with the minimum wage elasticity rising to
2´68. However, the coverage variable is no longer
signi® cant.
In further sensitivity analysis (not shown), speci® ca-
tions similar to those in columns (3) and (4) were
 Do Minimum Wage Hikes Raise US Long Term Unemployment?
estimated. In this case, the contemporaneous minimum
wage variable and the production worker wage variables
were omitted from the model. Also, to focus just on
the minimum wage rate, the coverage variable was also
omitted (which had little in¯ uence on the results). In
this case, the lagged minimum wage elasticity was 2´01
with a t-statistic of 1´44. Likewise, in another model,
1990 data were included. The lagged minimum wage
elasticity equalled 2´08 and the t-statistic equalled 1´85.
However, because the federal minimum wage increase
took eVect in April 1990 and a recession began in
1990, these results should be cautiously interpreted.
Finally, a corresponding linear model (not log) was
estimated (without 1990 data). The minimum wage
elasticity equalled 2´62 with a t-statistic of 2´36. Overall,
this sensitivity analysis suggests that the positive lagged
minimum wage response is robust and not an artefact
of including the contemporaneous minimum wage
variable.
The speci® cation in column (5) adds the lag of
minimum wage coverage to the model in column (1).
The lagged coverage variable’s t-statistic is only 0´57,
supporting our contention that there is very little lagged
coverage eVect. Conversely, the contemporaneous cov-
erage coeYcient is little changed from before as well
as the two minimum wage coeYcients. The bottom of
Table 2 shows the results of an F-test for separately
imposing the Kaitz restriction contemporaneously and
with a lag (on the minimum wage, coverage and
manufacturing wage coeYcients). The null hypothesis
can be rejected at the 5% level in both cases ( p5 0´017;
p5 0´001) suggesting that the Kaitz restriction is inap-
propriate. In both the contemporaneous and lagged
cases (not shown), the Kaitz coverage adjusted mini-
mum wage coeYcient would have been negative and
statistically insigni® cant (t-statistics of 2 0´54 and
2 0´29, respectively). Thus, imposing the Kaitz restric-
tion would have given the impression of a negative
(but insigni® cant) relationship between the minimum
wage and long term unemployment.
C A R D and K R U E G ER , 1995, argued that including
federal minimum wage coverage adds little to estimat-
721
ing the impacts of the minimum wage and, thus,
they did not include it in their model. Despite the
signi® cance of the coverage variable, to examine this
possibility, column (6) reports results from the model
which omits coverage from the speci® cation in column
(1). The minimum wage elasticity is slightly larger in
this case and the joint signi® cance of the sum of
the minimum wage coeYcients is slightly improved
( p5 0´104 vs. p5 0´166).
Table 3 highlights additional sensitivity regressions
that were estimated to examine the robustness of the
model shown in column (1) of Table 2. Row (1) is a
two-stage least squares model (2SLS) treating produc-
tion worker wages as endogenous.14 Row (2) adds the
lag of the industry mix employment coeYcient to
account for dynamic economic eVects correlated with
long term unemployment. Row (3) adds the overall
employment/population ratio as an additional cyclical
control to examine whether adding a clearly endogen-
ous cyclical variable to the model confounds the results.
Finally, row (4) adds the log average private sector
hourly wage in place of the average production worker
hourly wage.
The consistent pattern in Table 3 tends to aYrm
the ® ndings in Table 2. First, the contemporaneous
minimum wage eVect remains negative and generally
statistically signi® cant. The lag minimum wage co-
eYcient is positive and generally statistically signi® cant,
where the magnitude of the lag coeYcient more than
oVsets the contemporaneous eVect. The consistent
® nding that the lag eVect is larger than the contempor-
aneous eVect lends additional support to this pattern.
Finally, the coverage elasticity ranges from 2´0 to 4´0.
Speci® cally, the results in the ® rst two rows of Table 3
are little changed from column (1) of Table 2. As
expected, adding the employment/population ratio
(row (3)) aVects the ® ndings, where the minimum
wage eVect is diminished, but this is oVset by the
coverage eVect becoming more in¯ uential. Substituting
the average private sector hourly wage also lessens the
minimum wage eVects in row (4). However, this could
be caused by the average private sector wage suVering

Table 3. Alternative log long term unemployment rate regression models (absolute value of t-statistics) 1
(4)
(1) (2) (3) F-test
Log(minimum Log(minimum Minimum wage H0 :BMW 1 (5)
Model wage) waget2 1 ) elasticity BMW(t2 1)5 0 Log coverage
(1) 2S LS, production worker wage endogenous 2 3´22 5´63 2´41 2´63 3´20
(1´57) (2´85) ( p5 0´106) (1´76)
(2) Add lag industry mix employment growth 2 2´95 4´80 1´85 1´98 3´45
(3´45) (2´70) ( p5 0´161) (1´83)
(3) Add log (total employment/population) 2 1´80 2´24 0´44 0´15 3´74
(2´31) (1´48) ( p5 0´700) (2´84)
(4) Use log average private sector hourly wage 2 2´80 3´83 1´03 0´63 2´41
(3´35) (2´10) ( p5 0´429) (1´38)

Note: 1. The models are the same as used in column (1) of Table 2 with the changes indicated in the row. Long term unemployment is
de® ned as an unemployment duration longer than 26 weeks.
722 Mark D. Partridge and Jamie S. Partridge
from endogeneity and measurement error, suggesting
that those results are possibly spurious.15
The results in Tables 2 and 3 appear to consistently
suggest that greater minimum wage coverage increases
long term unemployment rates. Likewise, they indicate
that the magnitude of the lagged minimum wage
coeYcient more than oVsets the negative contemporan-
eous minimum wage coeYcient (where both are
usually statistically signi® cant at the 5% level). Yet, the
sum of the minimum wage coeYcients is in many cases
only statistically signi® cant at the 10 to 20% level.
Regardless, the reduced form model without produc-
tion worker wages (column (4) of Table 2) suggests a
signi® cant minimum wage response at the 5% level,
where there are reasons to more heavily weigh those
results.
As indicated above, state-level long term unemploy-
ment rates are very diYcult to estimate precisely by
the Bureau of Labor Statistics, which increases the
noise to signal ratio in the regressions. Thus, before
making any ® rm judgements, it would seem prudent
to examine the minimum wage’s eVect on more aggre-
gate unemployment, employment/population and
labour-force participation rates, which are likely to be
measured more accurately.
Aggregate unemployment rates
Given the fairly large long term unemployment
response to changes in the minimum wage, minimum
wage changes should have a perceptible impact on
aggregate unemployment rates, especially if other forms
of unemployment also increase. For example, D EE R E
et al., 1995, provide evidence of large disemployment
eVects for `at risk’ population subgroups, although it is
reasonable to expect a smaller response for aggregate
unemployment than long term unemployment. Hence,
to examine this possibility, as well as to examine the
robustness of the patterns found above, Table 4 reports
regression equations using three diVerent aggregate
state unemployment rates as the dependent variable.
The basic model is unchanged with the exception that
the average manufacturing wage is omitted from these
speci® cations since it is quite likely that it is endogenous
when considering the aggregate labour market (i.e. it
is a reduced form model).
In Table 4, columns (1)± (3) respectively report
regression results using the total, male and female
unemployment rates as the dependent variable. Gener-
ally, the aggregate results follow the same pattern as
before ± the contemporaneous minimum wage is
negative and the lagged coeYcient is positive (where

Table 4. Aggregate labour market regression results (absolute value of t-statistics) 1

(1) (2) (3) (4)
Log total Log male Log female Log employment/ (5)
unemployment rate unemployment rate unemployment rate population Log LF/population

Log(minimum wage) 2 1´49 2 1´52 2 1´45 0´13 0´054

(3´93) (3´30) (3´28) (1´86) (0´88)
Log(minimum wage)t2 1 2´88 3´19 2´42 2 0´34 2 0´166
(4´33) (4´12) (3´24) (3´06) (1´78)
Log(minimum wage coverage) 2´07 2´29 1´91 0´11 0´21
(2´97) (2´48) (2´99) (1´04) (2´55)
Industry mix employment growth 2 7´35 2 6´95 2 7´38 0´49 0´06
(3´16) (2´69) (2´70) (1´51) (0´19)
Share 15± 19 14´28 12´40 18´32 0´06 2 0´52
(2´06) (1´56) (2´31) (0´05) (0´47)
Share 20± 24 2 31´69 2 24´90 2 39´43 5´44 2´93
(5´50) (3´67) (6´27) (5´74) (3´78)
Share 55± 64 2 21´09 2 21´93 2 19´25 0´26 2 1´13
(2´91) (2´77) (2´25) (0´23) (1´29)
Share 65 1 2 28´87 2 22´62 2 36´98 2´79 2 0´05
(4´52) (2´85) (5´79) (3´25) (0´08)
Year ® xed eVects Y Y Y Y Y
State ® xed eVects Y Y Y Y Y
R2 0´92 0´91 0´91 0´97 0´97
F-stat: bMWt 1 bMW(t2 1) 5 02 8´54 8´77 3´55 9´03 3´76
( p5 0´004) (p5 0´003) ( p5 0´061) (p5 0´003) (p5 0´054)
Autocorrelation q 3 0´129 0´077 0´065 0´239 0´223
N 288 288 288 288 288
Minimum wage coverage elasticity 2´07 2´29 1´91 0´11 0´21
Minimum wage elasticity 1´39 1´67 0´97 2 0´21 2 0´11

Notes: 1. The t-statistics use the White correction for heteroscedasticity. Columns (1)± (5) respectively have regression results for the total
unemployment rate, male unemployment rate, female unemployment rate, total employment/population percentage, and total labour
force/population percentage. The dependent variables are measured in natural log.
2. The F-statistic for the null hypothesis that the sum of the minimum wage rate coeYcients equals zero.
3. The ® rst-order autocorrelation of the within-state residuals.
 Do Minimum Wage Hikes Raise US Long Term Unemployment?
both are statistically signi® cant at the 1% level). The
F-statistics at the bottom of Table 4 indicate that the
null hypothesis that the sum of the minimum wage
coeYcients equals zero can be rejected at the 1% level
for total unemployment and male unemployment and
at about the 6% level for female unemployment. There-
fore, the aggregate unemployment results are estimated
more precisely than before. The minimum wage elasti-
city equals 1´39 for total unemployment, indicating
that a 10% increase in the minimum wage would raise
the average state’s unemployment rate about 0´9%
percentage points (to 7´2% on average). As expected,
all three aggregate minimum wage elasticity estimates
are smaller than the corresponding estimate for long
term unemployment (in column (1), Table 2).
Minimum wage coverage is positively related to all
three aggregate unemployment rates, where the eVect is
statistically signi® cant at about the 1% level. Again, the
estimated coverage elasticity is smaller for the aggregate
measures than for the long term unemployment rate.
As noted earlier, the ® nding of a `favourable’, con-
temporaneous, state-level, minimum wage response
that is more than oVset by an `unfavourable’ , lagged,
minimum wage response is not limited to this study.
For example, N E U M A R K and W A S CH E R , 1992, 1994,
found this pattern for teen (and 16 to 24 year old)
employment/population ratios. P A R T R I D G E and
P A R T R I D G E , 1998, also found this same pattern for
teen unemployment rates. This was the case when
they directly examined teen unemployment rates or
indirectly when they considered teen employment/
population rates and labour force participation rates.
Finally, P A R T R I DG E and P A R T R I D G E , 1999, found
the same dynamic pattern for retail and non-farm state-
level employment. As an additional characteristic of
these studies, note that unemployment, employment/
population and labour-force participation rates are from
the household CPS and retail and non-farm employ-
ment are from establishment surveys, suggesting that
the dynamic minimum wage response is not an artefact
of a single survey.
Aggregate employment/population and labour-force participa-
tion results
To further investigate the robustness of the results,
columns (4) and (5) report regression results using the
log employment/population ratio and the log labour
force participation rate as the dependent variables. If
the above explanations are correct, the employment
rate should be positively related to the contemporan-
eous minimum wage rate due to strong unmeasured
economic conditions at the time of passage. This posi-
tive eVect would then be overwhelmed by a negative
lagged minimum wage response. Likewise, the initial
favourable economic conditions along with a higher
minimum wage should induce more people into the
labour force. However, the above explanations imply
723
that, after a lag, people will exit the labour force as
they become discouraged by the negative minimum
wage eVects.
The minimum wage results in columns (4) and
(5) are consistent with these expectations. The initial
response of the employment rate is positive, but this is
more than oVset by a negative lagged minimum wage
response. Likewise, the labour force initially expands,
but this is overwhelmed by people exiting the labour
force with a lag. The overall employment/population
minimum wage elasticity is 2 0´21 after two years
where the corresponding participation elasticity is
2 0´11. The joint F-statistics show that the overall
employment response is statistically signi® cant at the
0´3% level and the overall participation response is
signi® cant at the 6% level. Together, columns (4) and
(5) suggest that the aggregate unemployment rate rises
after a lag because employment falls faster than the
labour force in response to a minimum wage hike. In
fact, using a derivation in B R O W N et al., 1982, the
results in columns (4) and (5) suggest that a 10%
state minimum wage increase will lift the aggregate
unemployment rate by 0´9%, the same as in column
(1). Finally, the results in columns (4) and (5) suggest
that minimum wage coverage lifts aggregate unemploy-
ment by lifting the labour supply.
Overall, the aggregate results follow the same
dynamic pattern as the long term unemployment
results, further suggesting that the long term unemploy-
ment response is not a statistical artefact. In addition,
the precision of the aggregate coeYcients increases our
con® dence in the long term unemployment patterns.
Thus, it may be possible that the long term unemploy-
ment estimates were aVected by measurement error.
Nevertheless, beyond exploring the robustness of the
previous results, the aggregate ® ndings also suggest a
strong response to state-level minimum wage increases.
Given that these results are based on variations in state
minimum wage rates, these ® ndings are not surprising.
That is, diVerences in state minimum wage rates can
generate cross-sectional variations in ® rm births and
® rm deaths as well as shifts in state migration patterns.
Conversely, ® rms or individuals cannot relocate to
avoid federal minimum wage requirements, implying a
smaller federal minimum wage response.
C O N C L US I O N
This study examined the impact of state-level minimum
wage rates on unemployment rates, focusing on the
long term unemployed over the 1984± 89 period. The
emphasis on long term unemployment extends mini-
mum wage research by considering how unemploy-
ment durations for attached low skilled workers are
aVected. By examining the 1984± 89 period, we took
advantage of the large cross-sectional variation that
occurred when many states raised their minimum wage
above the federal minimum rate of $3.35.
724 Mark D. Partridge and Jamie S. Partridge
We consistently found that the minimum wage is
positively related to long term unemployment rates
after a lag. However, it was often the case that the
sum of the contemporaneous and lag minimum wage
coeYcients was of only modest statistical signi® cance
(i.e. at the 10± 20% level). Yet, the reduced form results
without the production worker wages suggested a
statistically signi® cant minimum wage result at the 5%
level. Regarding minimum wage coverage, we found
that greater coverage increases long term unemploy-
ment, where the statistical signi® cance was stronger
than for the minimum wage rate results. One possible
factor that in¯ uenced the minimum wage rate results
was measurement error in estimating the long term
unemployment rates. In fact, further analysis using
aggregate labour market measures yielded results
strongly consistent with long term unemployment pat-
terns. This increased our con® dence in the long term
unemployment results.
These results suggest that policy makers at the federal
and state level should weigh additional total unemploy-
ment, as well as the possibility of longer durations
of unemployment, in contemplating future minimum
wage increases. In particular, state policy makers should
consider the prospect of ® rm and household relocation
in their decision making. Likewise, in an era of welfare
reform, these results suggest that some low-skilled
welfare recipients may experience long job searches,
suggesting that minimum wage hikes may run counter
to the work requirement goals of welfare reform. One
possible policy alternative is expanding the earned
income tax credit. To be sure, this does not mean that
policy makers should forego minimum wage increases,
just that they should fully weigh the costs and bene® ts.
The ® ndings tend to support the standard prediction
that there are negative consequences from raising the
minimum wage, at least at the state level. Foremost,
this was the case even after adjusting for the empirical
concerns raised by C A R D et al., 1994; and C A R D and
K R UE G ER , 1995. None the less, more research should
be conducted to explore if these results apply to other
periods besides the 1980s. However, a challenge facing
such research is that, unlike the late 1980s, there has
been considerably less cross-state variation in minimum
wage rates in the 1990s. Another complication is that
the Federal Government no long publishes state-level
minimum wage coverage estimates.
Acknowledgem ents ± The authors thank Dan Aaronson,
Gary Hunt, Dan Rickman and Dan Sullivan for their helpful
comments with this study.
NO T E S
1. An earlier version of this paper was presented at the
November 1997 North American Regional Science
Association International Meetings in BuValo, New
York, and at a Federal Reserve Bank of Chicago seminar.
2. Given their low skill levels, minimum wage rates are
especially thought to price teen workers out of the job
market. Yet, teens are also associated with even briefer
spells of unemployment than adults. Regardless, C L AR K
and S U M ME RS , 1990a, 1990b, ® nd that there is also a
hard core group of teens that suVer long durations of
unemployment, which composes about one-half of teen
unemployment.
3. A typical explanation for negative duration dependence
is a stigma eVect where long durations of unemployment
are a negative signal to potential employers of the worker’s
productivity. For more details on duration dependence,
see V A N D EN B ER G and V A N O U RS , 1996.
4. Among demographic groups, teens (especially minority
teens) are thought to be most in¯ uenced by minimum
wage rates (S M I TH and V A V RI CH EK , 1992). Besides
teens, other demographic groups could be prone to
(long) unemployment spells as a result of minimum wage
hikes. For example, the 1988 unemployment rate for
those between 20 and 24 years old was 8´7%. N EU M AR K
and W A SC H ER , 1992, ® nd that this age group is about
as adversely aVected by minimum wage hikes as teens.
Moreover, the 20± 24 age group’s share of the labour
force in 1988 was about four-® fths larger than the share
for the 16± 19 age group. Likewise, high school drop-
outs over the age of 25 had an unemployment rate that
was about four percentage points above the overall
unemployment rate in 1992 (the earliest year available).
Drop-outs are another demographic group that are
strongly aVected by minimum wage laws.
5. Although longer periods of duration are of interest in
European nations, the CPS measure of 26 weeks was
chosen due to data availability at the state level. Yet,
given that a very small share are unemployed for more
than one year and that state unemployment insurance
bene® ts typically expire after 26 weeks, this duration is
of great practical importance in the US.
6. After the federal minimum wage increased to $4.25 an
hour in April 1991, only three contiguous states had a
minimum rate above the federal rate. In fact, the state
minimum wage changes of the latter 1980s created what
C A RD, 1992, termed `remarkable’ variation in minimum
wage levels that forms an unique natural experiment
into the eVects of minimum wage legislation which has
not been replicated before or since. In contrast, national
time-series studies are hampered by the constraint that
the federal minimum wage varies infrequently, creating
signi® cantly less time-series variation.
7. One reason for the double-log form in equation (1) is
that the Kaitz restriction is a special case. Speci® cally,
the Kaitz restriction requires that b5 a and b5 2 p,
which will be statistically tested below. To see this, note
that the Kaitz variable is COVERAGE*MINWAGE/
AVG WAGE. Taking the natural log results in
LCOVERAGE1 LMINWAGE2 LAVG WAGE, where
L re¯ ects the natural log.
8. If a state changed their minimum wage in mid-year, a
weighted annual average of their minimum wage was
used. State minimum wage rate information was found
in various January issues of the U S Department of Labor,
 Do Minimum Wage Hikes Raise US Long Term Unemployment?
Monthly Labor Review, in which state labour law changes
are summarized.
9. As shown in C A RD and K REU GER , 1995, p. 218, it is
unnecessary to de¯ ate wages by the price de¯ ator in the
current speci® cation (e.g. by the CPI). That is, the sum
of the real minimum wage for state s and year t and the
year indicator variable is: blog(MINWAGEst/CPIt)1 s t* .
This can be rewritten as blog(MINWAGEst)2
blog(CPIt)1 s * t . Since CPIt does not vary across states,
this can be rearranged as: blog(MINWAGEst)1 s t , where
s t5 blog(CPIt)1 s t* . Similar reasoning applies to the
average wage term.
10. Despite our best eVorts, it will be very diYcult to fully
control for state economic conditions related to passage
of a minimum wage increase because law makers rely
on a host of unmeasurable factors including constituent
economic con® dence. Conversely, N E U MA R K and
W A SC H ER , 1992, tried to instrument for the timing of
minimum wage hikes, but their results were unaVected.
Regardless, it is very diYcult to ® nd an exogenous
instrument related to the passage of minimum wage
increases that is also unrelated to the economic condi-
tions of the state and region.
11. We expect that coverage will not have a lagged eVect,
although this assumption will be tested. With the excep-
tion of the expansion of coverage to state and local
government in 1985, there was no change in the indus-
tries covered by federal minimum wage legislation in
the late 1980s, suggesting that there should be little
adjustment lag for employers.
12. C AR D and K RU E GE R , 1995, used the 1990± 92 ® rst-
725
difference as their empirical speci® cation. This may be a
misspeci® cation when there are state ® xed eVects in state
growth rates, such as persistent growth in the Sunbelt. A
related concern is that there are only 51 observations
using this approach.
13. It is possible that the two-year lag of the minimum wage
rate may aVect long term unemployment. However,
when we included the two-year lag in the model (not
shown), it was not statistically signi® cant at even the
20% level while the other two minimum wage rate
coeYcients were each statistically signi® cant at the 1%
level.
14. Two exogenous instruments were used in the ® rst-stage
model. The ® rst is the real wage mix of the state, which
is the hypothetical wage rate in the state if all the state’s
industries paid their respective national average wage
(P AR TR ID GE and R I CKM A N , 1995, 1997). The real
wage mix is a measure of whether the state has a mix of
high or low paying industries. The second instrument is
the percentage of the state’s non-farm employment in
high-tech manufacturing industries.
15. The production worker hourly wage is a direct hourly
wage estimate. Conversely, we indirectly derived the
average private sector hourly wage by taking average
private sector weekly earnings divided by average weekly
hours. Both weekly earnings and (especially) hours are
likely endogenously related to long term unemployment.
Also, this wage measure is quite similar to K IM and
T A Y L O R ’s, 1995, wage measure, which was criticized
for measurement error (C A RD and K RU E GE R , 1995;
K EN N AN , 1995).

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