Does measurement error explain the increase in subminimum wage payment following minimum wage increases?

In analyses of minimum wages, positive “ripple effects” and subminimum wages are difficult to distinguish from measurement error. Indeed, prior work posits that a simple, symmetric measurement error process may underlie both phenomena in Current Population Survey data for the full working age popula...

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Bibliographic Details
Published inEconomics letters Vol. 217; p. 110638
Main Authors Clemens, Jeffrey, Strain, Michael R.
Format Journal Article
LanguageEnglish
Published Elsevier B.V 01.08.2022
Subjects
Minimum wage
Noncompliance
Subminimum wage
K42
Minimum wage
J08
Noncompliance
J38
Subminimum wage
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Summary:In analyses of minimum wages, positive “ripple effects” and subminimum wages are difficult to distinguish from measurement error. Indeed, prior work posits that a simple, symmetric measurement error process may underlie both phenomena in Current Population Survey data for the full working age population. We show that the population-wide symmetry between spillovers and subminimum wage payment is illusory in that spillovers accrue to older individuals while subminimum wage payment accrues to the young. Symmetric measurement error cannot explain this heterogeneity, which increases the likelihood that both spillovers and subminimum-wage payment are real effects of minimum wage increases rather than artifacts of measurement error. •Minimum wage increases generate both wage gains and increases in subminimum wages.•Spillovers and underpayment are difficult to distinguish from measurement error.•We show that spillovers and underpayment accrue to different populations.•Spillovers accrue to older workers and underpayment to young workers.•The asymmetry we find can help to distinguish real effects from measurement error.
ISSN:0165-1765
1873-7374
DOI:10.1016/j.econlet.2022.110638