Arin Dube presentation on Minimum Wage policies in the US

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Professor Arindrajit Dube of the Department of Economics at the University of Massachusetts Amherst's presentation on Minimum Wage Policies in the US: Past Lessons and Future Directions.
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  • 1. Arindrajit Dube Department of Economics University of Massachusetts Amherst, and IZA Resolution Foundation, UK March 4, 2015 Minimum Wage Policies in the US: Past Lessons and Future Directions
  • 2. 2Arindrajit Dube Department of Economics (UMass Amherst) IZA Why study the U.S. minimum wages?  U.S. minimum wage setting is a total mess • Oh, but what a great mess it is!  We have tons of different minimum wages • “Quasi experimental variation” • BUT … they’re not random • Have to devise clever ways of deciphering causal effects – it’s fun being a labor economist in U.S.!  Enacting city-wide minimum wages in metro areas • New feature in developed countries • Substantially higher levels of minimum wage (50-60% median FT wage)
  • 3. 3Arindrajit Dube Department of Economics (UMass Amherst) IZA Ratio of US federal minimum to median wage of FT workers: 1960- 2012
  • 4. 4Arindrajit Dube Department of Economics (UMass Amherst) IZA States and cities step in with federal inaction Number of states with minimum wages higher than the federal level Number of cities with minimum wage laws 0 5 10 15 20 25 30 35 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 29 14
  • 5. 5Arindrajit Dube Department of Economics (UMass Amherst) IZA Min. wages in 2015, and ratio to median FT wage 0% 10% 20% 30% 40% 50% $0 $2 $4 $6 $8 $10 SouthDakota Vermont Nevada California Oklahoma Arizona Ohio RhodeIsland Kentucky Louisiana NewYork Missouri Illinois NewMexico Alaska Alabama Kansas Georgia Colorado Utah NewJersey Wisconsin Minnesota Massachusetts Maryland Virginia Minimum wage Ratio of minimum to median wage Sources: American Community Survey Data; state/fed MW from NCSL
  • 6. 6Arindrajit Dube Department of Economics (UMass Amherst) IZA Challenges in identifying causal effects  Starting in early 1990s, use of variation across states  Pioneered by Neumark and Wascher (1992)  Problem: states raising minimum wages systematically different  Assumption of “parallel trends” across not tenable  Minimum wage “effects” often occur prior to policy implementation
  • 7. 7Arindrajit Dube Department of Economics (UMass Amherst) IZA Generalizing the case study approach  Card and Krueger (1994, 2000) case study of NJ/PA – leveraging proximity  Dube Lester and Reich (2010, Review of Economics and Statistics)  All pairs of contiguous counties straddling state borders (“border discontinuity”)  UI-based payroll data on restaurant employment from 1990-2006  Dube Lester and Reich (2014, Journal of Labor Economics, forthcoming)  Additionally study young workers  Additionally look at hires and separations (turnover)
  • 8. 8Arindrajit Dube Department of Economics (UMass Amherst) IZA Research design: comparing contiguous border counties Figure A1 Map of Contiguous Border Pairs County pair centroids no more than 75 miles apart Minimum wage difference No difference County pair centroids more than 75 miles apart Minimum wage difference No difference Not in either sample Source: Dube, Lester Reich (2014)
  • 9. 9Arindrajit Dube Department of Economics (UMass Amherst) IZA Impact of a 10% increase in the minimum wage: Restaurant Sector  Average earnings  2.0%*  Prices  0.7%*  Employment  0.1%  Turnover rate  2.1%* Teens  Average earnings  2.2%*  Employment  0.6%  Turnover rate  2.0%* Sources: Aaronson (2001); Dube, Lester Reich (2010, 2014)
  • 10. 10Arindrajit Dube Department of Economics (UMass Amherst) IZA Ongoing controversy?  Not much disagreement that employment effect in the restaurant sector is small • Neumark, Salas and Wascher (2014) “matching estimator” • Totty (2014) • Addison, Blackburn and Cotti (20 • Dube, Lester and Reich (2010, 2014)  Bigger disagreement – teens (e.g., Neumark, Salas and Wascher 2014) • Shrinking share of minimum wage workers • Weight of studies that account for non-random selection find small effects
  • 11. 11Arindrajit Dube Department of Economics (UMass Amherst) IZA Absorbing a wage increase  Price increases are important channel of absorption  Turnover reduction is sizable • Workers tend to stay in jobs longer • Indicative of “search frictions” mattering • Lower cost of replacement • Higher incentive for training  Early evidence on reallocation across firms (from low to high productivity)
  • 12. 12Arindrajit Dube Department of Economics (UMass Amherst) IZA Impact of a 10% increase in the minimum wage: Family Income (all non-elderly)  10th pctile income  3.2%*  Poverty rate  2.4%*  SNAP enrollment  2.4%*  Poverty rate net of tax credits and transfers:  2.0%* Sources: Dube (2014); Reich and West (2014). Statistical significance at 5% level indicated by *
  • 13. 13Arindrajit Dube Department of Economics (UMass Amherst) IZA But…how high? Organizing for city-wide standards
  • 14. 14Arindrajit Dube Department of Economics (UMass Amherst) IZA City-wide policies – nature of urbanization  Increasingly urban  Cities are increasingly more unequal • Between each other • Within themselves – especially high wage cities • Increased job polarization - professional and service workers  High wage cities are also high cost-of-living cities • Especially for those at the bottom
  • 15. 15Arindrajit Dube Department of Economics (UMass Amherst) IZA 0% 10% 20% 30% 40% 50% 60% $0 $2 $4 $6 $8 $10 $12 $14 $16 MinimumtoMedianWageRatio MinimumWage(2015$) City Minimum wage State Minimum wage Min-to-Median Ratio Biggest metro areas: Minimum Wages Sources: American Community Survey Data; state/fed MW from NCSL; city MW from UC Berkeley CLRE. Assumes a 2.5% inflation rate for converting future wages to 2015$
  • 16. 16Arindrajit Dube Department of Economics (UMass Amherst) IZA Characteristics of three city minimum wages Sources: San Francisco - Reich, Jacobs, Bernhardt and Perry (2014) San Diego - Reich, Jacobs, Bernhardt and Perry (2014) Seattle - Klawitter, Long, Plotnick (2014)
  • 17. 17Arindrajit Dube Department of Economics (UMass Amherst) IZA Raising city minimums up to 60% of median FT wage Potentials for larger job losses  Somewhat outside of our knowledge base • Our cross border evidence from 35-55 percent of median • Limited understanding of heterogeneity and nonlinearity of effects (best evidence: Zipperer 2014)  Movement across city borders • To date, very limited evidence of such movement  Coordination across cities within metro area • Jurisdictional coordination in San Fran. and Wash. DC areas.  Automation – robots! • iPad use in McDonald’s
  • 18. 18Arindrajit Dube Department of Economics (UMass Amherst) IZA Raising city minimums up to 60% of median FT wage Potentials for offsets  Mitigate wage polarization in cities  Price adjustment – likely easier in highly polarized cities  Allow more low-wage workers to live within city • Increase demand for services from wage hikes • Neighborhood effects  Move towards high-training/low-turnover model • Evidence suggesting movement from low to high productivity firms (Aaronson et al. 2014) • Limitation: turnover reductions will diminish at higher minimum wage levels
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