Does regional variation in wage levels identify the effects of a national minimum wage?

Abstract

This paper evaluates the validity of estimators that exploit regional wage differences to study the effects of a national minimum wage. It shows that variations of the ``fraction affected'' and ``effective minimum wage'' designs are vulnerable to bias from measurement error and functional form misspecification, even when standard identification assumptions hold, and that small deviations from these assumptions can substantially amplify the biases. Using simulation exercises and a case study of Brazil's minimum wage increase, the paper illustrates the practical relevance of these issues and assesses the performance of potential solutions and diagnostic tools.

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Reproductions