arin dube presentation on minimum wage policies in the us

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

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)


Ratio of US federal minimum to median wage of FT workers: 1960- 2012


States and cities step in with federal inaction

Number of states withminimum 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


Min. wages in 2015, and ratio to median FT wage

0%

10%

20%

30%

40%

50%

$0

$2

$4

$6

$8

$10

South

Dakota

Verm

ont

Nevada

Califo

rnia

Okla

hom

a

Arizona

Ohio

Rhode I

sla

nd

Kentu

cky

Louis

iana

New

York

Mis

souri

Illinois

New

Mexic

o

Ala

ska

Ala

bam

a

Kansas

Georg

ia

Colo

rado

Uta

h

New

Jers

ey

Wis

consin

Min

nesota

Massachusett

s

Mary

land

Virgin

ia

Minimum wage Ratio of minimum to median wageSources: American Community Survey Data; state/fed MW from NCSL


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


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)


Research design: comparing contiguous border counties

! 60!

Figure A1 Map of Contiguous Border Pairs

County pair centroids no more than 75 miles apartMinimum wage differenceNo difference County pair centroids more than 75 miles apartMinimum wage differenceNo difference Not in either sample

Source: Dube, Lester Reich (2014)


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)


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


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)


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 *


But…how high? Organizing for city-wide standards


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


0%

10%

20%

30%

40%

50%

60%

$0

$2

$4

$6

$8

$10

$12

$14

$16

Min

imu

m t

o M

ed

ian

Wag

e R

ati

o

Min

imu

m W

ag

e (

20

15

$)

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$


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)


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


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

arin dube presentation on minimum wage policies in the us

News & Politics

minimum wage policies

minimum wage setting

proximity dube lester

review of economics

citywide minimum wages

massachusetts amherst

median ft wage sources

lester reich