On the substitution effect of the minimum wage increase: new evidence

Abstract

The impact of the minimum wage increase on the part-time/full-time employment ratio (PTFT) is re-examined. Contrary to some previous findings, strong evidence is found of the substitution effect that if the relative wage (the ratio of the minimum wage to the average hourly earning in the private sector) rises, PTFT decreases. The linear and logarithmic forms can be rejected. The partial adjustment process describes the lag response better. Real GDP growth is found to be insignificant and may be proxied by the unemployment rate for experienced workers.