Clustering Around the Wage Floor: the Effects of the Federal Minimum Wage on Employment In Puerto Rico
Reyes Jove, Tatiana
Wise, Andrew , PhD
Despite the wealth of literature on the effects of the minimum wage on employment in the contiguous U.S., there is a dearth of comparable studies for the island of Puerto Rico. This paper exploits U.S. Census data for the years 2005 to 2011 and employs a two-way fixed-effects model to examine the relationship between the federally mandated minimum wage and employment in Puerto Rico. Since all island residents are subject to the federal minimum wage, the main independent variable is a ratio that captures the relevance of the minimum wage within specific regions in Puerto Rico. The results of my analyses were robust and demonstrated the minimum wage’s strong negative correlation with employment, even after controlling for overall economic output, job availability, and demographic factors such as education, marital status, and public assistance. It was surprising, however, to find that minimum wage variable was not the most influential variable in the model. Rather, two of the three public assistance variables – notwithstanding their opposing signs – showed the greatest influence on the employment rate.
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