MINIMUM-WAGE LAWS - WHAT DOES AN EMPLOYMENT INCREASE IMPLY ABOUT OUTPUT AND WELFARE

Card and Krueger find empirically that minimum wage laws may increase employment. The current paper seeks the analytical implications of emp loyment-increasing minimum wages for output and welfare. The standard supply and demand model cannot be used for this purpose. One needs a m odel in which employment-increasing minimum wages are at least possibl e, such as this paper's efficiency wage model. Here, an employment inc rease is neither necessary nor sufficient for expected welfare gains f or either employed or unemployed workers. An employment-increasing min imum wage raises output but unambiguously lowers labor force participa tion and hurts those who remain unemployed. (C) 1998 Elsevier Science B.V. All rights reserved JEL classification: 538; 541.