Aggregation bias in elasticities of substitution and the minimum wage paradox

• 成果类型: Article
• 署名作者: Teulings, CN
• 署名单位: Tinbergen Institute; Erasmus University Rotterdam; Erasmus University Rotterdam - Excl Erasmus MC
• 刊物名称: INTERNATIONAL ECONOMIC REVIEW
• ISSN/ISSBN: 0020-6598
• DOI: 10.1111/1468-2354.00067
• 发表日期: 2000
• 页码: 359-398
• 关键词: employment; earnings; INEQUALITY; assignment; returns; MARKETS; skill; youth

摘要

While the employment effects of minimum wages are usually reported to be small (suggesting low substitutability between skill types), direct estimates suggest a much larger degree of substitutability. This article argues that this paradox is largely due to a bias induced by the aggregation of skill types into broad categories. An assignment model is applied where skilled workers have a comparative advantage in complex jobs. The implied pattern of substitutability reveals the sources of the bias. Estimation results for the United States show elasticities of complementarity to be underestimated by up to a factor 2.5. The methods laid out likewise can be applied to other markets where different quality types are close substitutes, such as the housing market.