Effects of Minimum Wages on Youth Employment: the Importance of Accounting for Spatial Correlation Charlene M. Kalenkoski & Donald J. Lacombe Published online: 9 September 2007 # Springer Science + Business Media, LLC 2007 Abstract The relationship between minimum wage increases and youth employ- ment is investigated using county-level data and spatial econometric techniques. Results that account for spatial correlation indicate that a 10% increase in the effective minimum wage is associated with a 3.2% decrease in youth employment, a result that is 28% higher than the corresponding estimate that does not control for spatial correlation. Thus, estimates that do not take into account spatial correlation may significantly underestimate the negative effect of the minimum wage on teenage employment. Improperly controlling for factors that vary systematically over space can lead to incorrect inferences and misinform policy. Keywords Spatial econometrics . Spatial autoregressive model . Minimum wage . Youth employment Introduction The literature analyzing the effects of minimum wages in the United States is quite large. There have been case studies of particular state minimum wage changes, time series studies of the effects of federal minimum wage changes, and cross- sectional and panel studies that investigate “effective” minimum wages, the maximum of state and federal minimums. They have often focused on teenage or youth employment as young, unskilled individuals are those thought most likely to J Labor Res (2008) 29:303–317 DOI 10.1007/s12122-007-9038-6 NO9038; No of Pages C. M. Kalenkoski (*) Department of Economics, Ohio University, 351 Bentley Annex, Athens, OH 45701, USA e-mail: kalenkos@ohio.edu D. J. Lacombe Department of Economics, Ohio University, 345 Bentley Annex, Athens, OH 45701, USA