text
stringlengths 1
100k
|
|---|
What do we need to keep in mind in applying research to policy? |
Study design offers a means of arbitrating between studies in the often conflicting minimum-wage literature. The strongest designs seem to consistently find little or no evidence of disemployment effects associated with increases in the minimum wage. However, when applying this research to policymaking, these findings do come with caveats. |
First, we can only make inferences about the impact of a minimum-wage increase if it is relatively similar to the sorts of minimum-wage increases that have been studied. Dube, Lester, and Reich (2010, 962) caution that their “conclusion is limited by the scope of the actual variation in policy; our results cannot be extrapolated to predict the impact of a minimum-wage increase that is much larger than what we have experienced over the period under study.” |
The recent bill introduced by Sen. Tom Harkin (D-Iowa) and Rep. George Miller (D-Calif.) to increase the minimum wage to $10.10 represents a 39.3 percent increase above the current federal minimum wage of $7.25, to be implemented over the course of three years. The typical increase in the legal minimum wage associated with the proposed change to $10.10 is of course lower than 39.3 percent because some states affected by the change at the federal level already have state minimum wages exceeding $7.25. States without a higher minimum than $7.25 would experience the full increase. Table 2 provides context for this increase by comparing it to prior federal minimum-wage increases. |
Table 2 Proposed and past federal minimum-wage increases Nominal minimum-wage increase Harkin-Miller proposal 39.3% in three steps 2007–2009 40.8% in three steps 1996–1997 21.2% in two steps 1990–1991 26.9% in two steps 1978–1981 45.7% in four steps 1974–1976 43.8% in three steps 1967–1968 28.0% in two steps Source: EPI analysis of Fair Labor Standards Act and amendments and the proposed Fair Minimum Wage Act of 2013 Share on Facebook Tweet this chart Embed Copy the code below to embed this chart on your website. Download image |
The increase in Harkin and Miller’s proposed Fair Minimum Wage Act of 2013 is typical of the federal minimum-wage increases since the late 1960s. The largest increases during this period (i.e., 1974–1976 and 1978–1981) came at a time of considerable inflation, so their magnitude to a large extent reflects an effort to keep up with consumer prices. However, the 40.8 percent increase between 2007 and 2009 is also larger than the Harkin-Miller proposal, despite the fact that it occurred in an environment of dramatically subdued inflation. |
Figure A presents the distribution of all percentage changes in effective minimum wages for all states from 1980 to 2011 using data from the University of Kentucky’s Center for Poverty Research. The “effective” minimum wage is defined here as the highest of either the federal or state minimum wage in a given state. Almost all increases were lower than 15 percent. The minimum-wage increase in New Jersey studied by Card and Krueger, at 18.8 percent in one year, was much larger than the average one-year increase during this period. Despite the magnitude of this increase, Card and Krueger found no notable disemployment effects. The proposed federal increase to $10.10 comes in three stages: a 13.1 percent nominal increase, followed by an 11.6 percent increase in the first year and a 10.4 percent increase in the second year after the initial increase. These increases are in the upper half of the distribution of changes in the effective minimum wage presented in Figure A, but well within the historical ranges studied by the empirical literature on the minimum wage. |
Figure A “Effective” one-year minimum-wage increases for all states, by percent change, 1980–2011 One-year increases 0-5% 85 5-10% 153 10-15% 219 15-20% 14 20-25% 5 25-30% 4 30-35% 5 35%+ 0 Chart Data Download data The data below can be saved or copied directly into Excel. The data underlying the figure. Note: The “effective” minimum wage is defined here as the highest of either the federal or state minimum wage in a given state. Periods with zero percent changes are excluded from Figure A. Source: Author’s calculations from the University of Kentucky Center for Poverty Research’s (2012) state-level data of economic, political, and transfer-program information for 1980–2011 Share on Facebook Tweet this chart Embed Copy the code below to embed this chart on your website. Download image |
The relative size of any proposed increase does not necessarily imply that the results from the matching literature are irrelevant, but these findings should be invoked with caution in cases that depart from historical norms. Ultimately, what matters is not the absolute increase in the minimum wage, but whether or not the minimum wage is in excess of the value of workers’ production to employers. |
Finally, policymakers need to remember that even the best national studies, such as Dube, Lester, and Reich (2010) or Allegretto et al. (2013), provide only average effects of the minimum wage across a wide sampling of counties. The effect of a federal minimum-wage increase in any given local labor market is likely to vary with local conditions. This point is made emphatically in Dube, Lester, and Reich (2010, 957); the authors show the variation in minimum-wage effects across different local labor markets in their sample. These estimates are all heavily concentrated around zero, consistent with their finding of negligible disemployment effects. However, the local labor estimates also show a nontrivial probability of having a considerably more positive or negative employment effect. This suggests that while on average the minimum wage does not have disemployment effects, some localities may exhibit these effects. Dube, Lester, and Reich’s (2010) estimates suggest that other localities may experience positive effects from the minimum wage, providing motivation for state or local minimum or living wages in excess of the federal minimum wage. |
Ultimately, even skeptics of the matching literature reviewed here need to consider total effects of the minimum wage, and not simply whether or not a disemployment effect can be identified. The disemployment effects identified in the weaker empirical strategies are still small, and the earnings gains for minimum-wage workers keeping their jobs are substantial. The net effect of a minimum-wage increase is therefore likely to be quite positive, even if concerns remain about a small population hurt by the minimum wage and in need of other assistance. Studies with the strongest study designs of course suggest that this population is extremely small if it exists at all. |
Conclusion |
Thinking about the designs of the major studies in the minimum-wage literature helps to approach Truman’s ideal of a one-armed economist. The best evidence we have comes from studies that try to match treatment cases with appropriate control cases. This research suggests that historically typical minimum-wage increases have no impact on employment, on average. This is valuable information for thinking about policy. It suggests that raising the minimum wage would not have the negative effects attributed to it by critics, but would increase the earnings of low-income families. |
Policymakers and the public should demand empirical rigor in research impacting the lives of low-income working families. Minimum-wage research should be conducted with the best feasible study designs, just as federal agencies demand the best designs when they seek out evaluations of other labor market policies. |
About the author |
Daniel Kuehn is a doctoral student in American University’s Department of Economics with field specializations in labor economics and gender economics. Before coming to American University he was a research associate at the Urban Institute’s Center on Labor, Human Services, and Population. He has a master’s degree in public policy, specializing in labor market policy, from George Washington University. |
Acknowledgements |
The paper benefited from comments and review by Josh Bivens, David Cooper, J. Bradford DeLong, Arindrajit Dube, Doug Hall, Robert Murphy, Ryan Murphy, Michael Reich, Heidi Shierholz, and David Wynn. |
Endnotes |
Within this family of methods, there is an approach to policy evaluation called “propensity score matching” that literally establishes a match between one treatment case and one or several comparison cases using an estimate of the probability of receiving a treatment. This paper, which is targeted to a broader audience, does not use “matching” to refer specifically to propensity scores, and instead uses it to describe any study design that consciously constructs comparison groups for treatment cases (here, cases experiencing an increase in the minimum wage). These include difference in difference models, regression discontinuities, synthetic control models, and other “natural experiments.” |
David Card published a study two years earlier, in 1992, examining the impact of a minimum-wage increase in California. This paper also used a matching strategy, even before the celebrated 1994 paper. However, the match in this paper was between California and a set of comparison states that roughly reproduced the demographic and labor market characteristics of California. This is not as clear of a match as the cross-border match in Card and Krueger (1994) nor does it set the same kind of precedent for future work by Arindrajit Dube and his colleagues, but Card (1992) should also be counted as an early example of the matching literature on the minimum wage. The author found no evidence of a decline in teenage employment or employment in retail. |
See Card and Krueger (2000). In their reanalysis of administrative payroll data, Card and Krueger (2000) also provide evidence of selection bias problems associated with data on New Jersey and Pennsylvania restaurants provided to Neumark and Wascher (2000) by Richard Berman, a public affairs executive who advocates on behalf of the food and beverage industry. Neumark and Wascher’s (2000) analysis of the Berman dataset finds that the minimum-wage increase reduced employment in New Jersey, although this finding is not consistent with the administrative payroll data. |
A detailed discussion of all of Dube’s work on the minimum wage is excluded in the interest of briefly outlining the differences between matching and nonmatching studies. Another critical contribution of Dube and his colleagues, Allegretto et al. (2013), is discussed below. Also of note are Dube (2013), which looks at minimum-wage effects by industry; and Dube, Naidu, and Reich (2007), which looks specifically at San Francisco. Recent work by Giuliano (2013) controls for unobserved heterogeneity by restricting the analysis to stores within a single firm. Giuliano also finds no evidence of disemployment effects from the minimum wage. |
This elasticity is estimated as the ratio of the minimum-wage coefficients in the employment and earnings regressions in Dube, Lester, and Reich (2010). |
In models that match counties that straddle a state border, additional “fixed effect” variables must be added indicating that a given county in the dataset is a member of a county pair. The inclusion of these fixed effects dramatically increases the size of the model that must be estimated. |
Notably, the standard errors of the estimates of the minimum-wage effect increase more substantially from the baseline model for the earnings regressions than they do for the employment regressions. The source of the difference between the earnings and employment regressions is thus driven by the change in the point estimates themselves, and not the precision of the estimates. |
For example, by using the entire state of Pennsylvania, Hoffman and Trace (2009) are comparing employment outcomes in Pittsburgh and rural western Pennsylvania with those in New Jersey. These communities are quite different and they are experiencing different types of economic change. In contrast, the original Card and Krueger (1994) study, which focused on border establishments, and Dube’s work with border counties compare far more similar local labor markets. |
Recall once again that “matching methods” is used here to describe a range of quasi-experimental methods that try to construct a comparison group that is a good match to the treatment group. |
See for example Leonard’s (2000) discussion of the reaction to Card and Krueger (1994). A particularly questionable and combative example is the case of the late Nobel laureate James Buchanan, who wrote in the Wall Street Journal in 1996, “Just as no physicist would claim that ‘water runs uphill,’ no self-respecting economist would claim that increases in the minimum wage increase employment. Such a claim, if seriously advanced, becomes equivalent to a denial that there is even minimal scientific content in economics, and that, in consequence, economists can do nothing but write as advocates for ideological interests. Fortunately, only a handful of economists are willing to throw over the teaching of two centuries; we have not yet become a bevy of camp-following whores.” |
The University of Kentucky dataset begins in 1980, in the middle of a three stage increase in the federal minimum wage. The first two stages, which are not in the data, were larger than the third. |
Some localities have implemented “living wages” that are higher than minimum wages and therefore may be associated with greater percentage changes in the minimum wage at the time of their implementation. These are not considered here, nor are they studied in the minimum-wage literature discussed above. See Holzer (2008) for a review of the literature on living wage laws. |
References |
Abadie, A., and J. Gardeazabal. 2003. “The Economic Costs of Conflict: A Case Study of the Basque Country.” American Economic Review, 93(1), 113–132. |
Addison, J., M. Blackburn, and C. Cotti. 2009. “Do Minimum Wages Raise Employment? Evidence from the U.S. Retail-Trade Sector.” Labour Economics, 16, 397–408. |
Addison, J., M. Blackburn, and C. Cotti. 2012. “The Effect of Minimum Wages on Labour Market Outcomes: County-Level Estimates from the Restaurant-and-Bar Sector.” British Journal of Industrial Relations, 50(3), 412–435. |
Allegretto, S., A. Dube, and M. Reich. 2011.“Do Minimum Wages Really Reduce Teen Employment? Accounting for Heterogeneity and Selectivity in State Panel Data.” Industrial Relations, 50(2), 205–240. |
Allegretto, S., A. Dube, M. Reich, and B. Zipperer. 2013.“Credible Research Designs for Minimum Wage Studies.” Unpublished manuscript, available at: http://www.irle.berkeley.edu/workingpapers/148-13.pdf. |
Blundell, R., and M. Costa Dias. 2000. “Evaluation Methods for Non‐Experimental Data.” Fiscal Studies, 21(4), 427–468. |
Buchanan, J. 1996. “Commentary on the Minimum Wage.” Wall Street Journal, April 25, A20. |
Card, D. 1992. “Using Regional Variation in Wages to Measure the Effects of the Federal Minimum Wage.” Industrial and Labor Relations Review, 46(1), 22–37. |
Card, D., and A.B. Krueger. 1994. “Minimum Wages and Employment: A Case Study of the Fast-food Industry in New Jersey and Pennsylvania.” American Economic Review, 84(4), 772–793. |
Card, D., and A.B. Krueger. 2000. “Minimum Wages and Employment: A Case Study of the Fast-food Industry in New Jersey and Pennsylvania: Reply.” American Economic Review, 90(5), 1,397–1,420. |
Couch, K. A., and D.C. Wittenburg. 2001. “The Response of Hours of Work to Increases in the Minimum Wage.” Southern Economic Journal, 171–177. |
Dube, A. 2013. “Minimum Wages and Aggregate Job Growth: Causal Effect or Statistical Artifact?” IZA Discussion Paper No. 7674. |
Dube, A., S. Naidu, and M. Reich. 2007. “The Economic Effects of a Citywide Minimum Wage.” Industrial and Labor Relations Review, 60(4). |
Dube, A., T.W. Lester, and M. Reich. 2010. “Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties.” The Review of Economics and Statistics, 92(4), 945–964. |
Dube, A., and B. Zipperer. 2013. “Pooled Synthetic Control Estimates for Recurring Treatments: An Application to Minimum Wage Case Studies.” Unpublished manuscript, available at http://www.irle.berkeley.edu/events/spring14/zipperer/dubezipperer_pooledsyntheticcontrol.pdf |
Giuliano, L. 2013. “Minimum Wage Effects on Employment, Substitution, and the Teenage Labor Supply: Evidence from Personnel Data.” Journal of Labor Economics, 31(1), 155–194. |
Hoffman, S. D. 2014. “Are the Effects of Minimum Wage Increases Always Small? A Re-Analysis of Sabia, Burkhauser, and Hansen.” Submitted to Industrial and Labor Relations Review. |
Hoffman, S. D., and D.M. Trace. 2009. “NJ and PA Once Again: What Happened to Employment When the PA–NJ Minimum Wage Differential Disappeared?” Eastern Economic Journal, 35(1), 115–128. |
Holzer, Harry. 2008. “Living Wage Laws: How Much Do (Can) They Matter?” Paper prepared for the 2008 Brookings-George Washington University-Urban Institute Conference on Urban and Regional Policy and Its Effects. |
Imbens, G., and J. Wooldridge. 2009. “Recent Developments in the Econometrics of Program Evaluation.” Journal of Economic Literature. 47(1), 5–86. |
Leonard, T. C. 2000. “The Very Idea of Applying Economics: The Modern Minimum-Wage Controversy and Its Antecedents.” History of Political Economy, 32, 117–146. |
Meer, J., and J. West. 2013. Effects of the Minimum Wage on Employment Dynamics. NBER Working Paper No. 19262. |
Neumark, D. 2001. “Evidence on Employment Effects of Recent Minimum Wage Increases from a Pre-Specified Research Design.” Industrial Relations. p. 121–144. |
Neumark, D., J.M. Salas, and W. Wascher. 2013. Revisiting the Minimum Wage-Employment Debate: Throwing Out the Baby with the Bathwater? National Bureau of Economic Research Working Paper No. w18681. |
Neumark, D., and W. Wascher. 1992. “Employment Effects of Minimum and Subminimum Wages: Panel Data on State Minimum Wage Laws.” Industrial and Labor Relations Review. 46(1), 55–81. |
Neumark, D., and W. Wascher. 1996. “The Effects of Minimum Wages on Teenage Employment and Enrollment: Estimates from Matched CPS Data.” Research in Labor Economics, 25–64. |
Neumark, D., and W. Wascher. 2000. “Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania: Comment.” American Economic Review, 1,362–1,396. |
Neumark, D., and W. Wascher. 2004. “Minimum Wages, Labor Market Institutions, and Youth Employment: A Cross-National Analysis.” Industrial and Labor Relations Review, 57(2), 223–248. |
Neumark, D., and W. Wascher. 2007. “Minimum Wages and Employment.” Foundations and Trends in Microeconomics, 1–182. |
Sabia, J. J., R.V. Burkhauser, and B. Hansen. 2012. “Are the Effects of Minimum Wage Increases Always Small? New Evidence from a Case Study of New York State.” Industrial and Labor Relations Review. 65(2). |
Singell, L.D., and J.R. Terborg. 2007. “Employment Effects of Two Northwest Minimum Wage Initiatives.” Economic Inquiry. 45(1), 40–55. |
University of Kentucky Center for Poverty Research. 2012. State-Level Data of Economic, Political, and Transfer-Program Information for 1980–2011. http://www.ukcpr.org/AvailableData.aspx. |
Refined mansion tax proposal being fed into debate on abolishing 50p tax rate for those earning more than £150,000 |
The Liberal Democrats are pushing for the eventual disbanding of the 50p rate of tax to see the implementation of a new land tax levied on properties above £1m. |
In a refinement of their controversial mansion tax policy launched at their party conference two years ago, the Lib Dems now believe there is an argument for levying capital gains tax on any money made from the sale of a property after the first £1m. |
The Lib Dem idea is being fed into the debate surrounding how to bring down the 50p rate for those earning more than £150,000. A review into the rate is expected to confirm suspicions it does not bring in much revenue but serves to deter international business from locating in the UK at a time when the chancellor is seeking to encourage inward investment and spur growth. |
Over the weekend, George Osborne gave his clearest sign that the top rate would come down. |
Speaking on BBC Radio 4, Osborne said there was "not much point" in having a tax that raised scant funds but that served to drive businesses out of Britain. |
Osborne said: "I've said with the 50p rate I don't see that as a lasting tax rate for Britain because it's very uncompetitive internationally, and people frankly can move. What is it actually raising? It's only been in operation for a year, this tax, put in place by the last government." |
Danny Alexander, the Lib Dem Treasury chief secretary, has said supporters of abolishing the 50p rate are living in "cloud cuckoo land". Vince Cable, the Lib Dem business secretary, has said if it goes it must be replaced by another imposition on the wealthy – possibly a mansion tax which would hit owners of the highest-value properties. |
And so, we stagger into an even more uncertain future |
Emotions ran high as Hong Kong legislators opened debate on a controversial electoral reform package on Wednesday. |
Supporters and opponents made last-ditch efforts after extensive campaigns to influence public opinion. |
(In the end, the measure was roundly rejected, with 28 votes against eight in favor of the bill after most of its supporters walked out.) |
As if these were not enough drama, police smashed a bomb plot on Monday that recalls conspiracies such as the Gunpowder Treason Plot, a failed assassination attempt on England’s King James in 1605, or the Reichstag Fire, an arson attack on the German parliament building in Berlin in 1933. |
One can’t help feeling that worse things are about to happen. |
Prosperous metropolis |
The British colonial authorities didn’t bother with so-called “desinicization” of Hong Kong. |
Rather, they gave way to local customs and did not force people to spurn Chinese history, culture, religion and the like. |
Under the British, Hong Kong earned a place on the global map as a prosperous metropolis unequalled in any Chinese society. |
China’s rapid rise as a global power and its growing ambitions have had a negative effect on local politicians and the business elite. |
They have become Beijing’s lackeys to promote its political agenda in Hong Kong including a controversial roadmap to the 2017 chief executive election. |
Young Hong Kong people see such moves by Beijing as a bad omen, especially after it issued a white paper last year in which it asserted full control and authority over Hong Kong in contravention of “one country, two systems”. |
Their concerns, dismissed as unrealistic and doomed, remain unanswered by Beijing and their own government. |
What’s worse, they are increasingly alienated by a government that is not above questionable tactics. |
Their disaffection has been used as an excuse by so-called “localists” to push separatism. |
That used to be a pipe dream. Now, the notion of Hong Kong independence has entered the real world. |
Secessionists are a minority but in a time of globalization and social networking, their message may be catching on. |
Although it might take a long time before they hit world headlines and begin to rattle China, it cannot be completely ignored. |
Three-year spiral |
It has only been three years into Leung Chun-ying’s administration and we’re already seeing a precipitous decline in social cohesion. |
Leung’s style of governance has led to increased public grievances and exacerbated political and social tensions. |
And continued bickering over constitutional reform has overshadowed the historic significance of Hong Kong’s return to Chinese sovereignty. |
The government’s response has been to exaggerate issues and stir up disputes, resulting in a crippling polarization of society. |
When it became clear in public opinion polls that more people were opposed to the election reform proposal, the government discredited the surveys, saying they had been manipulated. |
I wonder if Beijing also thinks that way, so that it simply ignores public sentiment as long as it has a loyalist at the helm. |
We have already seen that in Leung. |
Irrelevant |