Myth and Measurement: The New Economics of the Minimum Wage
Abstract
David Card and Alan B. Krueger have already made national news with their pathbreaking research on the minimum wage. Here they present a powerful new challenge to the conventional view that higher minimum wages reduce jobs for low-wage workers. In a work that has important implications for public policy as well as for the direction of economic research, the authors put standard economic theory to the test, using data from a series of recent episodes, including the 1992 increase in New Jersey's minimum wage, the 1988 rise in California's minimum wage, and the 1990-91 increases in the federal minimum wage. In each case they present a battery of evidence showing that increases in the minimum wage lead to increases in pay, but no loss in jobs. A distinctive feature of Card and Krueger's research is the use of empirical methods borrowed from the natural sciences, including comparisons between the "treatment" and "control" groups formed when the minimum wage rises for some workers but not for others. In addition, the authors critically reexamine the previous literature on the minimum wage and find that it, too, lacks support for the claim that a higher minimum wage cuts jobs. Finally, the effects of the minimum wage on family earnings, poverty outcomes, and the stock market valuation of low-wage employers are documented. Overall, this book calls into question the standard model of the labor market that has dominated economists' thinking on the minimum wage. In addition, it will shift the terms of the debate on the minimum wage in Washington and in state legislatures throughout the country.
... A promising alternative is the analysis of quasi-experiments, namely events that exogenously shift the wage rate (Addison et al., 2014). Most importantly, a large strand of the literature examines variation in minimum wage legislation (Brown et al., 1982;Card/Krueger, 1995). 11 Besides, other studies have instrumented wage rates by changes in social security taxes, firing costs, or massive immigrant shocks. ...
... The test of monopsony theory refers to sixteen low-wage sectors in Germany for which the Ministry of Labor and Social Affairs has declared sector-specific minimum wages. Prior 83 For reviews on the international minimum wage literature, see Brown et al. (1982), Card and Krueger (1995), Dolado et al. (1996), Brown (1999), Neumark and Wascher (2008) (Rinz, 2020), and the U.K., which featured a bell-shaped path in labor market concentration (Abel et al., 2018). ...
... whereas minimum wage effects are detrimental to employment in competitive labor markets, they do not impact or even stimulate employment in concentrated labor markets. Studies from both the international and the German minimum wage literature frequently arrive at near-zero employment effects (Card/Krueger 1995;Neumark/Wascher 2008;Möller, 2012;Caliendo et al., 2019). Many of these articles use the notion of oligopsonistic or monopsonistic market structures to reconcile the absence of considerable job destruction with economic theory (e.g., Card/Krueger 1994;Dustmann et al., 2021). ...
The own-wage elasticity of labor demand represents the effect of higher wages on the demand for labor and, thus, determines the impact of supply shocks, minimum wages, or collective wage agreements on the labor market. Both theoretical models and the body of empirical evidence state that an increase in the wage rate makes establishments reduce their labor demand. This dissertation contains three scientific essays that provide new empirical evidence on the own-wage elasticity of labor demand. The analysis covers the German labor market and focuses on the interaction of labor demand and frictions, namely coordination or transaction barriers that interfere with the functioning of the market mechanism. Apart from analyzing labor demand, the estimated models and elasticities also contribute to the understanding of the following features of the German labor market: job polarization, minimum wages, and labor shortage.
... whereas minimum wage effects are detrimental to employment in competitive labor markets, they do not impact or even stimulate employment in concentrated labor markets. Studies from both the international and the German minimum wage literature frequently arrive at near-zero employment effects (Card/Krueger 1995;Neumark/Wascher 2008;Möller, 2012;Caliendo et al., 2019). Many of these articles use the notion of oligopsonistic or monopsonistic market structures to reconcile the absence of considerable job destruction with economic theory (e.g., Card/Krueger 1994;Dustmann et al., 2021). ...
... Importantly, monopsony theory -the argument most frequently put forward to rationalize the absence of negative minimum wage effects -departs from perfect competition (Card/Krueger, 1995). The textbook monopsony model from Robinson (1933) postulates a single firm that is the only buyer in the labor market (see Figure A1). ...
... For reviews on the international minimum wage literature, seeBrown et al. (1982),Card and Krueger (1995),Dolado et al. (1996),Brown (1999),Neumark and Wascher (2008), Doucouliagos and Stanley(2009), Belman and Wolfson (2014), Neumark (2019), Wolfson and Belman (2019), or Neumark and Shirley (2021). Möller (2012) as well as Fitzenberger and Doerr (2016) provide overviews on eight studies evaluating the impact of sectoral minimum wages in Germany. ...
Economists increasingly refer to monopsony power to reconcile the absence of negative employment effects of minimum wages with theory. However, systematic evidence for the monopsony argument is scarce. In this paper, I perform a comprehensive test of monopsony theory by using labor market concentration as a proxy for monopsony power. Labor market concentration turns out substantial in Germany. Absent wage floors, a 10 percent increase in labor market concentration makes firms reduce wages by 0.5 percent and employment by 1.6 percent, reflecting monopsonistic exploitation. In line with perfect competition, sectoral minimum wages lead to negative employment effects in slightly concentrated labor markets. This effect weakens with increasing concentration and, ultimately, becomes positive in highly concentrated or monopsonistic markets. Overall, the results lend empirical support to the monopsony argument, implying that conventional minimum wage effects on employment conceal heterogeneity across market forms.
... The CBO's employment elasticity range is based most heavily on natural experiments in which employment changes in a state affected by a minimum wage increase are compared to employment changes in another state unaffected by a minimum wage increase. The use of these types of natural experimental designs to study the effects of minimum wage increases was pioneered in a 1995 work that shattered a decades-old consensus that minimum wage increases would come at the cost of modest but significant reductions in the employment of low-skill adults and teenagers given assumed competitive labor markets [4]. In fact, the authors found no evidence of a negative effect on employmentbut some evidence of a positive effect. ...
... In contrast to the effects on employment, the evidence that minimum wage increases are not very effective in reducing poverty is much less contentious. Minimum wage increases are not related to decreases in poverty rates because most people living in poverty do not work, and many of the working poor do not work full-time; or they work at hourly wage rates above the new minimum [4], [7]. In fact, one study finds that after a rise in the US minimum wage, the movement out of poverty of families whose wage earnings increase is more than offset by the movement of low-income families onto the poverty rolls because their earnings fall [7]. ...
... In fact, one study finds that after a rise in the US minimum wage, the movement out of poverty of families whose wage earnings increase is more than offset by the movement of low-income families onto the poverty rolls because their earnings fall [7]. The authors further find no relationship between minimum wage increases and poverty rates for the working poor [7], echoing previous results [4]. A more recent study explicitly considers the effect of minimum wage increases on prices of goods RICHARD V. BURKHAUSER AND KEVIN CORINTH | The minimum wage versus the earned income tax credit for reducing poverty produced by low-wage workers-which must rise if effects on employment and profits are negligible-finding that minimum wage increases are akin to a consumption tax that hits lower-income consumers harder and funds higher wages for low-wage workers who often are not members of low-income families [8]. ...
... The employment effect of the minimum wage increase remains an active area of debates among economists and is often associated with the different view on the degree of competition in the labor market (e.g., see Card and Krueger (2015) and Neumark et al. (2008) for conflicting views). A definite conclusion on the magnitude of the employment effect remains elusive as summarized by Manning (2021) with some studies finding even a small positive employment effect in contrast to the positive wage effect, which is agreeable in most studies. ...
... The empirical magnitude of the employment effect of the minimum wage is often tied up with the magnitude of competition in the labor market, In particular, a small positive employment effect found by Card and Krueger (2015) was regarded as evidence for the monopsony model of the labor market. When the employer has monopsony power, it pays wage below the marginal value of the product by a worker. ...
... It is assumed that the income of households living below the poverty line will increase according to the increasing of the MW. However, research shows that the use of MW levels for poverty reduction is not very successful way (Card and Krueger, 1995). Because the increasing of the minimum wage also affects the unemployment rate. ...
... Because the increasing of the minimum wage also affects the unemployment rate. With the increasing of the minimum wage, the dismissal of low-skilled workers may lead to their replacement by high-and mediumskilled workers (Card and Krueger, 1995). Studies by Lustig and McLeod (1996), as well as Clemens and Uither (2014), have led to similar results. ...
Sustainable socio-economic development of regions in the modern conditions of socioeconomic transformation in our country is the task of ensuring the independence and security of the national economy, its stabilization and stability, constant renewal and improvement. The article reviewed the problems of sustainability of regional socio-economic development, justified the conditions necessary for the sustainability of its development. The definition of the concept of sustainability of regional socio-economic development is given. Problems hindering the sustainability of regional development have been revealed. Based on the results obtained, the main priority directions of the regional economic policy on ensuring the sustainability of the regional socio-economic development were determined and the management instrument was proposed. Ensuring the sustainability of the socio-economic development of the regions requires new approaches in the determination of regional economic policy, working forms and methods of management. During the development of the regional economic policy to ensure the sustainability of socio-economic development, it is necessary to take into account the specific features of the region, determined by the share of the region's basic industries in the total volume of the country's output, the availability of the export sector in the economy of the regions, the provision of resource potential, the level of income and the mentality of the population.
... Secondary data refers to information collected by external entities for purposes other than those of the current research (Bougie & Sekaran, 2019). In this study, the secondary data were sourced from several agencies, including: (1) The Difference in Difference (DID) model is employed to analyze changes between variables due to temporal effects, policy effects, and the interaction of these effects (Card & Krueger, 2015). This method assesses impact by comparing the measured variables between the group benefiting from incentives and the control group that does not receive benefits over a relevant period. ...
The objective of this study is to examine the impact and influence of the Borne by Government Value-Added Tax (PPN-DTP) facility in the housing sector on the backlog rate of homeownership in Indonesia. Additionally, the research seeks to assess the effectiveness of this facility and its potential correlation with housing bubbles, as well as to provide relevant recommendations for future PPN-DTP policies in the housing sector. The study employs a mixed-methods approach, combining descriptive qualitative and quantitative methodologies. Primary data were collected through interviews with academics, officials from the Directorate General of Taxes, and taxpayers. Furthermore, the study utilized secondary data from public documents published by the Central Statistics Agency, the Ministry of Public Works and Housing, Bank Indonesia, and the Ministry of Finance of the Republic of Indonesia. The findings indicate that the PPN-DTP facility in the housing sector has a strong, positive, and significant impact and has proven effective in reducing the homeownership backlog in Indonesia. However, the sustainability of this facility in the long term requires further review, particularly regarding the eligibility criteria for beneficiaries and the urgency of strengthening oversight of the PPN-DTP facility by the Directorate General of Taxes to optimize its outcomes for the Indonesian public.
... Minimum wage increases have helped limit the growth of wage inequality in Canada (see Card and DiNardo, 2002;Card and Krueger, 1995;Gunderson, 2005;Lee, 1999;Lemieux, 2005;Tuelings, 2000). This was evident in the 1980s and 1990s on a national level (Card, Lemieux, Riddell, 2003). ...
... Why do about 70%-80% of outsiders (i.e., the unemployed, informal employees and low-skilled self-employees) support rather than oppose EPL, if protective regulations hurt them as claimed in the insider-outsider model (Ronconi, Kanbur, and López-Cariboni 2019)? Second, there is substantial debate about the economic effects of labor regulations, such as the minimum wage, not only in the developed world (Card and Krueger 1995;Neumark and Wacher 2006), but in LAC as well (Gindling and Terrell 2005;Bosch and Manacorda 2010). Freeman's (2010) review of the literature indicates that most studies find that minimum wages in developing countries reduce employment sufficiently modestly so that minimums generally help the less well paid. ...
This paper posits that we have a limited understanding, both theoretically and empirically, of how labor unions affect welfare in the LAC region. Alternative approaches developed in other contexts, such as the neoclassical insider-outsider theory or a Marxist perspective, do not easily translate to the region. The private sector is more concentrated than on other continents, and most countries have a strong executive power at the expense of a politicized civil service and weak political parties. Furthermore, non-compliance with laws is pervasive. In such a context, both public and private sector labor unions have more room to improve welfare, but are also more likely to be co-opted by powerful political and economic elites. In addition, the available empirical evidence is relatively small and difficult to interpret due to endogeneity concerns. Given this situation, I attempt to contribute to the literature in three dimensions: First, I emphasize the importance of enforcement and compliance. Second, I devote substantial space to the political arena, mainly because this is where labor unions in the region tend to exert more influence over efficiency and equity. Finally, I provide a few novel metrics to a subject that is difficult to quantify. JEL Code: I38, J51, J52, J58, O17, O54
... Interestingly, similar results have been obtained by meta-analysis considering the impact of the minimum wage on overall employment (seeBellman & Wolfson, 2014;Card & Krueger, 1995;Doucouliagos & Stanley, 2009;Leonard et al., 2014) and similar conclusions have been obtained in the recent narrative review byDube (2019).Content courtesy of Springer Nature, terms of use apply. Rights reserved. ...
The effect of minimum wages increases on youth employment level has been extensively analysed, but recent contributions have highlighted the potential bias in these studies due to neglected spatial autocorrelation in the considered relationship. This paper contributes to this scarce literature by providing novel evidence for a country with very low interregional mobility. The aim is to see if the bias of neglecting spatial dependence acts in a similar direction than in the few studies for the United States and if this bias explains the low elasticity of youth employment to minimum wages in Spain compared to the international literature. Our results show the relevance of spatial spillovers in the Spanish regional labour markets, but after correcting for the bias, we do not find a significant negative elasticity of youth employment to minimum wages, with the only exception of those between 16 and 19 years old.
... First, they assumed that the changes in the minimum wage did not affect employment. Card and Krueger (1995)'s contemporary work was used in support of the assumption of no employment effect. DFL also showed that allowing for modest employment effects had little impact on the findings. ...
... Di¤er taraftan Card (1992aCard ( , 1992b, Katz ve Krueger (1992), Stewart (2002: 585), Card, Katz ve Krueger (1994), , Machin ve Manning (1994), Card ve Krueger (1995), Bernstein ve Schmitt (1998) ise standart rekabetçi modelin aksine, asgari ücretin istihdam üzerinde anlaml› etkisinin olmad›¤›n› ya da pozitif etkisi oldu¤unu ileri sürmektedirler. Bazen (2000, s.64) Amerika Birleflik Devletleri ve ‹ngiltere'de yap›lan son çal›flmalarda asgari ücret art›fl›n›n genç istihdam›n› olumsuz etkiledi¤ine dair kan›t›n olmad›¤› iddias›ndad›r. ...
Econometric Analyses of the Relations Between Defined Macroeconomic Variables in
Labor Market of Turkey The individuals who cannot get income due to the unemployment cause the countries to en-counter big social and economic problems. Both increase in employment opportunities and improvement in other macro variables enable these problems to be solved.
The relations between unemployment rate, minimum wage, inflation and national income
are analyzed in this study regarding the period between 1978 and 2010 in the labor market of Turkey. Based on the analyses results, it is concluded that the increase in minimum wa-ge and inflation causes the unemployment rate to increase while the increase in national in-come causes the unemployment rate to decrease in the long run.
... By taking logarithms of each side of (5) and differentiating with respect tow, Card and Krueger (1995) show that the labor supply elasticity to the firm (ELw) can be expressed as the recruitment elasticity (ERw) less the quit elasticity (Eqw): ...
This article provides a comprehensive assessment of the theoretical and empirical literature on structural reforms in advanced economies. Structural reforms matter because they entail profound and systematic changes that affect economic welfare, productivity, growth, unemployment, macroeconomic stability, and income inequality. Here we focus on structural reforms in product, labor, and financial markets. After putting forward a set of stylized facts, we take stock of the literature on each of these three key structural reforms, and then assess their business cycle and political economy implications. We underscore various gaps in the literature and articulate a future research agenda that highlights four main areas: measurement, interactions among reforms, political economy considerations, and the timing of the implementation of reforms. (JEL D40, E23, E24, E25, E32, E44, P11)
El presente trabajo analiza el derecho al salario mínimo desde una perspectiva del derecho internacional, destacando sus implicaciones en países desarrollados y en desarrollo. Se examina el estado de arte, las normativas internacionales relevantes y las experiencias comparativas entre distintas naciones. Además, se abordan aspectos éticos, normativos y prácticos relacionados con la implementación y cumplimiento del salario mínimo. Finalmente, se proponen recomendaciones para fortalecer la regulación del salario mínimo y garantizar la protección de los derechos laborales.
El Gobierno de Puerto Rico aprobó la Ley de Salario Mínimo de Puerto Rico en el 2021. La misma establece como política pública adecuar el salario mínimo al costo de vida basándose en el principio de que las personas que trabajan generen ingresos suficientes para no vivir en pobreza. Para ejecutar esa política pública, la ley creó la Comisión Evaluadora del Salario Mínimo (CESM) y aumentó el salario mínimo de 10.50 por hora entre el 2022 y 2024. Como miembro de la CESM en la posición de economista en representación de los trabajadores, estuve de acuerdo en que entrara en vigor el aumento a $10.50 en el 2024, según fue establecido en la ley. En el presente artículo expongo algunos de los fundamentos principales que sostienen la necesidad y viabilidad de tal aumento.
Living wage campaigns are widely studied, yet less is known about how the frame differs from the minimum wage regarding public opinion and preferences. Such framing effects hold policy implications, as in 2016, UK Government changed the name of the regulatory wage floor to a living wage, concurrent with calls for welfare benefits cuts. This study explores how using the frame of ‘living’ rather than ‘minimum’ wage changes public socioeconomic expectations and preferences, and examines how a proposed wage increase, ranging from 50p to £6, comparatively influences public support for welfare spending. Methodologically, a sample from the United Kingdom's general population was recruited to participate in a series of online survey experiments. Treatment frames were randomly administered, followed by questions regarding the regulatory wage floor, and socioeconomic and redistributive preferences. Findings suggest introducing the term ‘living wage’ results in (1) higher expected real wages and unemployment effects; (2) raises the preferred wage floor for the United Kingdom and London; (3) greater desire for separate regional wage floors and (4) modest evidence suggesting that a living wage frame increases support for welfare spending. Interestingly, a proposed monetary wage floor increase had a null effect on welfare preferences when calling for a low or modest increase. However, a substantial proposed increase of over 50% led to a sharp reduction in support for benefits spending.
Why is there generally an attempt on the part of governments and international agencies to under-estimate the actual magnitude of the problem of poverty, and what strategies do they use? If poverty has been reduced, one must ask: why does poverty exist in the first place and what might be the limits to what the governments can do to eliminate it? In discussing these questions, the paper presents two major criticisms of existing poverty analysis. It then briefly presents a multi-scalar political economy framework for poverty analysis, as informed by a philosophy of internal relations. It also poses a series of questions that must be addressed by scholars so that they may have a better explanation of global poverty, including its temporal and geographical variations, and be able to significantly mitigate, and finally eliminate, poverty.
This article discusses the case of the minimimum wage for Italy as a policy instrument to foster both social justice and productive efficiency. After briefly reviewing the empirical evidence on the effects of minimum wages upon employment, wage distribution and firm-level reallocation, it presents a series of channels, from the micro to the macro level that can represent transmission mechanisms able to trigger positive feedback loops in the macroeconomic system.
Celem artykułu jest ocena stopnia realizacji funkcji płacy minimalnej, polegającej na zapewnieniu odpowiedniego poziomu dochodu gospodarstwa domowego. Z uwagi na przyjętą metodę realizacji celu pracy, jest to kwota pozwalająca na utrzymanie wartości kapitału ludzkiego w rodzinach zarabiających płacę minimalną. W pracy wykorzystano model pomiaru i opłacenia kapitału ludzkiego stworzonego z poszanowaniem podstawowych zasad rachunkowości. Model ten pozwala na obiektywne oraz dokładne obliczenie stawki płacy minimalnej, której wysokość zdeterminowana jest wartością kosztów utrzymania. Realizując cel pracy obliczono poziom zgodności między obowiązującą stawką płacy minimalnej a stawką wynikającą z modelu kapitału ludzkiego. Badaniami objęto wysokość obowiązujących płac minimalnych w Polsce w okresie 2003–2023 oraz przygotowano symulację na rok kolejny. Wyniki wskazują na rosnący poziom zgodności płacy obowiązującej z płacą modelową. Zjawisko to należy ocenić pozytywnie, gdy płaca minimalna w coraz większym stopniu zabezpiecza najuboższe rodziny przed rozpraszaniem ich kapitału ludzkiego. Z kolei wyniki symulacji wskazują, że na 2024 rok przewidziano stawkę nieznacznie przewyższającą wartość modelową, co będzie skutkować nadmiernym obciążeniem pracodawców. Uzyskane wyniki mogą znaleźć zastosowanie w udoskonaleniu procedury corocznej aktualizacji stawek płacy minimalnej. Możliwość dokładnego obliczenia jej kwoty pozwoli na zrównoważenie funkcji kosztowej i dochodowej płacy minimalnej, czyli zabezpieczenie wartości kapitału ludzkiego najuboższych rodzin przy najniższym możliwym koszcie po stronie pracodawcy.
This paper attempts to answer whether minimum wage increases help to close ethnic-gap in Peru. To answer this question, I study the period 2004–2019 and estimate the effects of minimum wage increases based on nominal minimum wage, real minimum wage, and Kaitz index terms. Also, I use several econometric strategies, but mainly I rely the results on IV-OLS and IV-Probit. I find that the minimum wage has generally benefited Whites, Mestizos, and Andeans, but especially the latter, which has boosted the closing of ethnic-gap. Minimum Wage increases has benefited mainly the Andean people in the lowest income bracket, that is, on the most vulnerable population or dependent on changes in the minimum wage. However, I find also that the minimum wage also has benefited another specific group, the high-skilled mestizos, which indicates that while the gap is reduced on the lower side, it opens on the higher side. Finally, when I analyze the probability of being employed, having informal employment, and having stable employment, I find small and non-significant impacts in most of the estimates.
In this chapter, we will provide the theoretical foundations for understanding inflationary and deflationary processes. As already mentioned, placing the theoretical explanation at the end of the book serves to improve the readability of the preceding chapters.
While governments around the world have adopted policies and regulations making pay more transparent, pay transparency continues to be a contentious issue. Proponents argue that greater transparency is more consistent with the ethical underpinnings of humanistic societies and likely to benefit employees, employers, and/or society. In contrast, opponents highlight the ethical challenges that transparency may pose to personal privacy, as well as its potential social, psychological, and economic risks for stakeholders. Despite mixed beliefs, there may be some transparency-related shifts that most stakeholders welcome, or at least accept, as well as reforms whose benefits likely outweigh particularistic stakeholder costs, offering society-wide, longer term utility. We first discuss steps that policymakers and leaders may take that are likely to have positive implications for both labor and management while minimizing unintended, negative consequences and then review recent public policy interventions already adopted, as well as additional interventions to be considered for future adoption.
In the view of many people, understandably, and all too many economists, disgracefully, the minimum wage law actually boosts compensation for people who would otherwise earn less than the amount established by this legislation. This is a snare and a delusion. In actual point of fact, this law increases the wages of no one at all, at least not in equilibrium; rather it leads to unemployment for those workers unfortunate to have a marginal revenue product below the level mandated by this enactment. It is the burden of the present paper to make good on this claim.
Part of the newly appeared, over the last 25 years, non-standard forms of work do not fall within the scope of labor and social security legislation, while the rest are covered to a certain extent. Therefore, the purpose of the present work is to examine the challenges for the national governments in adapting labor legislation to the new conditions of the labor market and to propose possible measures in this direction. In pursuit of the set goal, the author sets himself the following tasks: 1) To investigate the preconditions that led to the appearance and rapid spread of non-standard forms of employment; 2) To point out the factors complicating the regulation of labor standards and the insurance protection of persons engaged in non-standard employment; 3) To look for and propose opportunities for regulatory and control measures in non-standard forms of employment, as well as to present some good examples of government initiatives.
This study used a differences-in-differences strategy with national time diary data from 2003 to 2018 to examine the effects of minimum wage changes on parents’ time with children and in child-related activities. Findings indicate that a $1 increase in the minimum wage was associated with a small increase (2.6%) in the likelihood parents with one or more children under age 16 spent time actively caring for or helping children on weekends, and in more total time with children (a 2% increase in secondary child care time). In general, coefficients were larger for mothers’ time use, particularly non-employed mothers, with potential implications for gender disparities in caregiving. Unmarried parents and parents of color showed increases in their time spent in activities related to children’s health (~55% increase). Mothers showed an increase (8%) in the likelihood they spent any time in child education-related activities, and increases in child care time appeared concentrated among parents whose youngest child was 6–15 years of age. Findings suggest that increases in state minimum wages may lead to small increases in parents’ time investments in children, with some variation among subgroups.
Institutions matter! This chapter bridges selected institutional settings influencing key labour outcomes. It stresses the inherently political process of institutional change after briefly discussing three case studies. First, it covers the evidence on topical minimum wage policies, arguing for what should be a context-based decision. Second, it turns to policy stances towards unemployment and its relationship with business cycles. Finally, it addresses the fight against discrimination, discussing measurement and policy issues.
Approximately 44% of U.S. workers are low-wage workers. Recent years have witnessed a raging debate about whether to raise their minimum wages. Why do some decision-makers support raising wages and others do not? Ten studies (four preregistered) examined people’s beliefs about the malleability of intelligence as a key antecedent. The more U.S. human resource managers (Study 1) and Indian business owners (Study 2) believed that people’s intelligence can grow (i.e., had a growth mindset), the more they supported increasing low-wage workers’ compensation. In key U.S. swing states (Study 3a), and a nationally representative sample (Study 3b), residents with a more growth mindset were more willing to support ballot propositions increasing the minimum wage and other compensation. Study 4 provided causal evidence. The next two studies confirmed the specificity of the predictor. People’s beliefs about the malleability of intelligence, but not personality (Study 5a) or effort (Study 5b), predicted their support for increasing low-wage workers’ compensation. Study 6 examined multiple potential mechanisms, including empathy, attributions for poverty, and environmental affordances. The relationship between growth mindset and support for raising low-wage workers’ wages was explained by more situational rather than dispositional attributions for poverty. Finally, Studies 7a and 7b replicated the effect of growth mindset on support for increasing low-wage workers’ compensation and provided confirmatory evidence for the mediator—situational, rather than dispositional, attributions of poverty. These findings suggest that growth mindsets about intelligence promote support for increasing low-wage workers’ wages; we discuss the theoretical and practical implications.
This study explores how bonding contracts improve employee attraction and retention. These bonds are payment schemes tied to employment duration, such as the vesting of pensions and stock options. This study presents an employee turnover model in which only the worker knows their taste for their current job. This taste gives the current employer monopsonistic power, resulting in deadweight loss from excessive turnover. Bonding contracts serve as a commitment device for future wages and eliminate such deadweight loss, but only when the roles of bondholders and wage setters are separate. Firms that do this are more competitive to new hires. This model offers several empirical findings regarding a variety of common bonding practices.
The article considers the theoretical problems of international labor migration under the influence of external shocks. The destructive impact of hostilities in Ukraine is underscored by the forecasts of international institutions. External migration of Ukrainians can have extremely serious consequences. Emphasis is placed on the distinction between exogenous and endogenous shock factors. Endogenous are macroeconomic in origin, forms and results, micro- and mesoeconomic in shifts in business processes. Exogenous shocks have the following forms of origin: macroeconomic "black swans" as destructive fluctuations in world markets; catastrophic natural disasters; socio-political conflicts. The evolution of the main theories of international migration has been studied. The relevance of theoretical principles and practical application of microeconomic analysis of migration processes is emphasized. Globalization and increasing inequality have directed a significant part of research to analyze population movements from peripheral to central countries, with a focus on the economic situation in donor countries. Modern foreign theories of migration are based on the postulates of the neoclassical approach, which determines the movement of labor migration with a vector from countries and regions with excess human potential to countries with high demand and limited supply. Discrepancies become apparent when the use of cheap migrant labor makes a profit at the corporate level. At the same time, macroeconomic assessments note technological stagnation, the preservation of low levels of conditions and wages. The role of migration rent in the policy of firms-recipients of foreign labor force is analyzed. In conditions of global inequality, the rent for the use of cheap labor has an objective basis and is the main motive for the formation of a special labor market for foreigners. After the end of the war, the key issue for Ukraine and the world community will be the recovery of the national economy and the return of migrants to their homeland. Supporting the refugee return process, ensuring their reintegration and employment in the Ukrainian economy will contribute to the rapid resumption of economic activity in Ukraine. All practical steps must be based on sound theoretical principles, classical studies of international labor markets and labor migration processes.
This paper investigates the impact of the minimum wage (MW) on corporate tax avoidance. By exploiting heterogeneity in the MW level across cities and over time in China, we find that increases in the MW are associated with greater tax avoidance by firms. Our results are robust to the consideration of a sample of contiguous firms in two adjacent cities subject to different MWs, and a difference-in-differences research design that exploits the enactment of the Labor Contract Law in 2008 as an exogenous shock to the MW. In cross-sectional analyses, we find that the positive impact of MWs on tax avoidance is more pronounced for firms with higher labour intensity, greater financial constraints, and less product market power and in regions with laxer enforcement. Our paper suggests that the MW policy imposes substantial, albeit likely unintended, externalities on corporate tax. Our findings can help inform policymakers of more potential implications of MW policies.
Using cross-state and intertemporal variation in whether a state’s minimum wage is bound by the federal minimum wage, we provide evidence that minimum wage increases lead U.S. public firms in minimum-wage-sensitive industries (i.e., retail, restaurant, and entertainment) to cut capital expenditures. These effects are concentrated one to two years after the law goes into effect. Prior to the minimum wage increase, investment trends are similar across minimum-wage-sensitive firms in bound versus unbound states, and we find little evidence that minimum wage changes affect U.S. public firm investment outside of these industries.
This paper was accepted by Victoria Ivashina, finance.
The disagreement among studies on the employment effects of minimum wages in the United States is well known. Less well known, and more puzzling, is the absence of agreement on what the research literature says—that is, how economists summarize the body of evidence on the employment effects of minimum wages. Summaries range from “it is now well established that higher minimum wages do not reduce employment,” to “the evidence is very mixed with effects centered on zero so there is no basis for a strong conclusion one way or the other,” to “most evidence points to adverse employment effects.” We explore the question of what conclusions can be drawn from the literature, focusing on the evidence using subnational minimum wage variation within the United States that has dominated the research landscape since the early 1990s. To accomplish this, we assembled the entire set of published studies in this literature and identified the core estimates that support the conclusions from each study, in most cases relying on responses from the researchers who wrote these papers. Our key conclusions are as follows: (i) there is a clear preponderance of negative estimates in the literature; (ii) this evidence is stronger for teens and young adults and the less educated; (iii) the evidence from studies of directly affected workers points even more strongly to negative employment effects; and (iv) the evidence from studies of low‐wage industries is less one‐sided.
Over the last three decades, wage inequality and the importance of the minimum wage presented an interesting negative correlation in Portugal. Using a semiparametric approach, counterfactual decomposition methods, and an extremely rich matched employer-employee dataset of all employees in the country, this paper presents significant visual and quantitative evidence of how the minimum wage structurally reshaped the wage distribution. The remarkable rise in the real minimum wage of 2006-2019 fully explained the sharp decline in wage inequality, and 40% of average wage growth - for women, who benefited the most, that was 60%. Spillover effects reached up to 40% above the minimum, being at times more important than the bite itself. The minimum wage reduced within and between wage inequality in several fronts, cutting the gender wage gap by a quarter, potentially decreasing the returns to education, and raising wages of workers at less productive firms. While the minimum wage bite was felt in workers' base wages, spillovers predominantly manifested in total wages.
Minimum wage opponents often argue that businesses owned by marginalized communities, which include woman-owned, Black-owned, and immigrant-owned businesses, are exceptionally vulnerable to minimum wage increases. Little research has investigated this claim. Using a unique survey of Seattle businesses that includes owners’ nativity status and was administered while the city began to phase in its 15 per hour. Evidence suggests that immigrant franchisees have a lower likelihood of passing the increased labor costs onto employees because they use fewer employees and rely more heavily on family labor compared to other franchisees. The authors’ findings suggest that firms owned by marginalized and nonmarginalized groups respond to municipal-level minimum wage increases in comparable ways. Nevertheless, marginalized status may matter more in certain sectors of the economy than in others.
Depression is a major public health concern among expectant mothers in Canada. Income inequality has been linked to depression, so interventions for reducing income inequality may reduce the prevalence of maternal depression. The current study aims to simulate the effects of government transfers and increases to minimum wage on depression in mothers. We used agent-based modelling techniques to identify the predicted effects of income inequality reducing programs on maternal depression. Model parameters were identified using the All Our Families cohort dataset and the existing literature. The mean age of our sample was 30 years. The sample was also predominantly white (78.6%) and had at least some post-secondary education (89.1%). When income was increased by just simulating an increase in minimum wage, the proportion of depressed mothers decreased by 2.9% (p < 0.005). Likewise, simulating the Canada Child Benefit resulted in a 5.0% decrease in the prevalence of depression (p < 0.001) and Ontario’s Universal Basic Income pilot project resulted in a simulated 5.6% decrease in the prevalence of depression (p < 0.001). We also assessed simulated changes to the mother’s social networks. Progressive income policies and increasing social networks are predicted to decrease the probability of depression.
Purpose: The study investigated the impact of minimum wage administration on industrial peace and employees' productivity in public secondary schools in Ogun State, Nigeria. It established how effective minimum wage administration can enhance industrial peace, employees' job satisfaction and productivity in public secondary schools in Ogun State, Nigeria. Methods: The study adopted survey research design. A total of three local government areas were studied. The population consisted one hundred and fifty employees spread across the three local government areas namely; Ijebu-Ode, Ijebu-Igbo and Odogbolu Local Government Areas. Five schools were selected in each of the local government areas out of which ten employees were randomly selected in each of the schools, among the selected respondents were the teaching and non-teaching staffs of the selected schools. Forty five respondents were sampled for the study while multistage sampling and stratified simple random technique was adopted as the sampling technique. Statistical Package for the Social Sciences (SPSS) was employed in analysing the data generated. Findings: The findings established that wage administration has significant correlation with industrial peace and job performance with correlation coefficients 0.298 and 0.256 respectively. Wage administration also has significant correlation with job performance (r = 0.314). Job performance has significant correlation with employee productivity (r = 0.418). Employee productivity does not have significant correlation with industrial peace and wage administration in public secondary schools in Ogun State. Conclusion: The study concluded that minimum wage administration has a significant relationship with employees' productivity and a positive impact on industrial peace in public secondary schools in Ogun State. Recommendation: The study recommended that government should ensure industrial peace and optimal productivity among staff of public secondary schools through provision adequate rewards like pay rise, promotion regular appraisal of minimum wage administration.
Packaging is a major side issue in the consumption of products, mainly food goods. Therefore, the introduction of more eco-friendly packaging has been one of the strongest trends in the packaging sector in recent years. However, in many markets, the perception of packaging as environmentally friendly is not entirely clear. The purpose of this paper is to assess the perception and importance of the environmental aspects of food product packaging by its purchasers, which might serve to further identify existing barriers or opportunities in their purchase. Consumers expect environmentally friendly
packaging, but this did not correlate with their market behaviour. For nearly 50% of the respondents, food product packaging did not influence their purchasing choices. Also, when given the choice between standard and eco-friendly packaging, the majority of the respondents declared that they would choose the former. The main constraints on purchasing environmentally friendly packaging included price constraints and the availability of eco-friendly packaging, but also situation-related factors, particularly the SARS-CoV-2 pandemic. During the pandemic, the purchasing behaviour of
buyers was mainly directed towards the aspect of current health and life protection, pushing the ecological aspect into the background. The level of knowledge of eco-labels placed on food product packaging should be considered insufficient and
differentiated by gender, i.e. a lower percentage of the women than the men correctly identified the symbols on the packaging.
The 2021 Nobel Prize in Economic Sciences was awarded to David Card, Joshua Angrist, and Guido Imbens for advancing methodology to establish casual relationships in economics. Their approach brought the notion of the natural experiment, situations in which heterogeneous reactions of different groups of people to chance shocks or policy changes allows to elicit causal effects, to the forefront of empirical analysis, and spearheaded a revolution in development of statistical methods needed to analyze the data. After the initial contributions in labor economics and economics of education, the new approach has become a new standard in economic sciences.
This study analyses firms’ labour demand when employers have at least some monopsony power. It is argued that without taking into account (quasi-)monopsonistic structures of the labour market, wrong predictions are made about the effects of minimum wages. Using switching fractional panel probit regressions with German establishment data, I find that slightly more than 80% of establishments exercise some degree of monopsony power in their demand for low-skilled workers. The outcome suggests that a 1% increase in payments for low-skilled workers would, in these firms, increase employment for this group by 1.12%, while firms without monopsony power reduce the number of low-skilled, by about 1.63% for the same increase in remuneration. The study can probably also be used to explain the limited employment effects of the introduction of a statutory minimum wage in Germany and thus leads to a better understanding of the labour market for low-skilled workers.
JEL Codes: J23, J42, C23, D24
In order to address the impact of regulation on ethical concerns of consumers, we study the effect of a minimum wage. In our experimental market, consumers have monopsony power, firms engage in Bertrand competition, and workers are passive recipients of a wage payment. Two treatments are employed, one with no minimum wage in the first part but with a minimum wage in the second part, and one treatment with a minimum wage at the outset that is abolished in the second part. In both treatments, wages decrease over time in the first part even though some consumers show an interest in fair wages. If a minimum wage is in place, wages decline even faster. Introducing a minimum wage in a mature market raises average wages, while abolishing it lowers them. We discuss the implications of our results, such as the crowding out of ethical behavior through legal regulation.
Significance
Alongside wages, work schedules are a fundamental component of job quality, yet work schedules are largely unregulated in the US labor market. In 2017, Seattle became the second large US city to pass fair workweek legislation. Seattle’s Secure Scheduling ordinance aims to increase schedule predictability by requiring employers to provide 2 wk notice of work schedules, among other provisions. Our paper shows that Seattle’s law not only increased schedule predictability but also improved subjective well-being, sleep quality, and economic security. The law had no effect on reports of psychological distress. Using the natural experiment afforded by Seattle’s fair workweek law, we provide causal evidence that uncertainty about work time has harmful effects on worker happiness, sleep quality, and material hardship.
This paper quantifies the effect of minimum wages on workers' occupational mobility. I show that minimum wages decrease younger, less-educated workers' occupational mobility and are associated with more mismatch. A search-and-matching model highlights two channels by which the minimum wage decreases occupational mobility. First, it compresses wages and reduces the gain from switching, leading to lower occupational mobility and more mismatch. Second, it decreases vacancy posting. Calibrating the model to the US economy, the results suggest that a 15 dollar minimum wage can damp aggregate output by 0.4 percent, of which the wage compression channel accounts for 80 percent.
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Consider individual labor supply and consumption from the life-cycle perspective. Because many of the elderly are retired, they may little directly benefit from state policies that increase wage income. But they may benefit indirectly: lower taxes on labor may consequently increase labor supply and reduce the price of services the elderly buy, for instance, nursing care.
Interactions between redistributive policies can confront low‐income households with complicated choices. We study one such interaction, namely the relationship between Medicaid eligibility thresholds and the minimum wage. A minimum wage increase reduces the number of hours a low‐skilled individual can work while retaining Medicaid eligibility. We show that the empirical and welfare implications of this interaction can depend crucially on the relevance of labor market frictions. Absent frictions, affected workers may maintain Medicaid eligibility through small reductions in hours of work. With frictions, affected workers may lose Medicaid eligibility unless they leave their initial job. Empirically, we find that workers facing this scenario became less likely to participate in Medicaid, less likely to work, and more likely to spend time looking for new jobs, including search while employed. The observed outcomes suggest that low‐skilled workers face substantial labor market frictions. Because adjustment is costly, tinkering with safety net program parameters that determine the location of program eligibility notches can be harmful to beneficiaries.
This dissertation consists of four self-contained empirical studies in applied labor economics. The first study analyzes the effects of minimum wages on labor and product market outcomes in a highly competitive sector. The second study investigates the effects of minimum wages on the educational plans of (low-skilled) teenagers. The third study provides novel evidence on gender differences in the labor market. The fourth study analyzes the benefits and drawbacks of different statistical learning techniques with respect to their ability to predict long-term unemployment among jobseekers.
: A report is made on the provisions and effects of U.S. minimum wage laws, referring almost entirely to teenage youths. The discussion involves employment, the business cycle, job distribution, school attendance, and policy interactions.
This paper tests Mincer's minimum-wage model by estimating reduced-form wage and employment equations for both the covered and uncovered sectors in nine regions of the United States. As theory predicts, in regions with comparatively small covered-sector demand elasticities, the northern and midwestern regions, the uncovered-sector wage increases after a minimum-wage hike; and in regions with comparatively large demand elasticities, the southern and western regions, the uncovered-sector wage decreases. Because of data limitations the uncovered-sector employment effect could not be estimated sharply, and so its relationship to the covered-sector demand elasticity is weak.
This article argues that, within a broader dynamic framework, sustained minimum wage hikes can result in significant disemployment, unemployment, and nonparticipation effects. Methodologically, this study differs from earlier empirical research on minimum wages in that it uses multiple time-series methods, although endogenous-exogenous relations among variables are determined theoretically. The article consists of five parts. Part I presents a theoretical model of the labor market in which a minimum wage hike induces labor mobility. Part II discusses the institutional background to minimum wage application in Puerto Rico. Part III develops the empirical dynamic model, first in univariate and later in multivariate form. Part IV examines patterns of labor mobility resulting from minimum wage hikes and interprets the results of the dynamic time-series model. Conclusions appear in Part V. -from Author
