Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/96642
Authors: 
Aaronson, Daniel
French, Eric
Sorkin, Isaac
Year of Publication: 
2013
Series/Report no.: 
Working Paper, Federal Reserve Bank of Chicago 2013-26
Abstract: 
We document two new facts about the market-level response to minimum wage hikes: firm exit and entry both rise. These results pose a puzzle: canonical models of firm dynamics predict that exit rises but that entry falls. We develop a model of firm dynamics based on putty-clay technology and show that it is consistent with the increase in both exit and entry. The putty-clay model is also consistent with the small short-run employment effects of minimum wage hikes commonly found in empirical work. However, unlike monopsony-based explanations for small short-run employment effects, the model implies that the efficiency consequences of minimum wages are potentially large.
Subjects: 
Employment
minimum wage
putty-clay model
JEL: 
J23
J30
L10
Document Type: 
Working Paper

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