:: Life Of Dave ::

Minimum wage

One of the things that happened in the recent election here in Arkansas was a ballot issue which increased the minimum wage from $8.50 an hour to $9.25 on Jan. 1, 2019; $10 on Jan. 1, 2020; and $11 on Jan. 1, 2021. This has led to everyone and their cousin weighing in on the effect this will have on the state (it's quite strange, as the reactions I'm seeing among the general populace are negative, and yet the measure was approved 70/30).

Although I have for the most part not engaged, I was curious if the literature had progressed to offering any clarity. I headed over to NBER, a place where many working papers are published, to see what came up. Here's a sampling of recent findings:

"Using American Community Survey data from 2011-2016, we find robust evidence that state-level minimum wage changes decreased the likelihood that individuals report having employer-sponsored health insurance. Effects are largest among workers in very low-paying occupations, for whom coverage declines offset 9 percent of the wage gains associated with minimum wage hikes."

"We examine the impact of the state minimum wage on infant health. Using data on the universe of births in the US over 24 years, we find that an increase in the minimum wage is associated with an increase in birth weight driven by increased gestational length and fetal growth rate. The effect size is meaningful and plausible. We also find an increase in prenatal care use and a decline in smoking during pregnancy, which are some channels through which minimum wage can affect infant health."

"We find that the average minimum wage increase of $0.50 reduces the probability that men and women return to prison within 1 year by 2.8%. This implies that on average the effect of higher wages, drawing at least some released prisoners into the legal labor market, dominates any reduced employment in this population due to the minimum wage. These reductions in returns to incarcerations are observed for the potentially revenue generating crime categories of property and drug crimes; prison reentry for violent crimes are unchanged, supporting our framing that minimum wages affect crime that serves as a source of income."

"On net, the minimum wage increase from $9.47 to as much as $13 per hour raised earnings by an average of $8-$12 per week. The entirety of these gains accrued to workers with above-median experience at baseline; less-experienced workers saw no significant change to weekly pay. Approximately one-quarter of the earnings gains can be attributed to experienced workers making up for lost hours in Seattle with work outside the city limits. We associate the minimum wage ordinance with an 8% reduction in job turnover rates as well as a significant reduction in the rate of new entries into the workforce."

"With some specifications and samples, the evidence suggests that higher minimum wages lead to longer-run declines in poverty and the share of families on public assistance, whereas higher welfare benefits have adverse longer-run effects. However, the evidence on minimum wages and welfare benefits is not robust – and the estimated effects of minimum wages are sometimes in the opposite direction, including when we restrict the analysis to more recent data that is likely of more interest to policymakers."

I then headed over to Google Scholar to see what else I could find:

"we find that the overall number of low-wage jobs remained essentially unchanged. At the same time, the direct effect of the minimum wage on average earnings was amplified by modest wage spillovers at the bottom of the wage distribution. "

"We document two new findings about the industry‐level response to minimum wage hikes. First, restaurant exit and entry both rise following a hike. Second, there is no change in employment among continuing restaurants."

I should explain that last one - it looks like after a rise in the minimum wage, there's an increase in the number of restaurants that close, but also in the number that open.

In this next one, 'award wages' refers, more or less, to the minimum wage.

"I  find  no  evidence  that  these  small,  incremental increases in award wages have an adverse effect on hours worked or the job destruction rate."

Finally, some have suggested that food prices will rise, and rise more for processed food (since you have to pay people to process it). This paper suggests otherwise: "Supermarket food prices do not appear to be differentially impacted by Seattle’s minimum wage ordinance by level of the food’s processing. These results suggest that the early implementation of a city-level minimum wage policy does not alter supermarket food prices by level of food processing."

On net, the results are for the most part what I expected - maybe some employment effects, maybe not, maybe some other positive effects, maybe some other negative effects.

Disclaimer: I literally just grabbed some stuff from each abstract - I didn't really examine too closely methodology, etc. though I did try to avoid things that seemed like the method or data might be weird. For example:

"This paper develops a new model with heterogeneous firms under perfect competition in a Heckscher-Ohlin setting to show that a binding minimum wage raises product prices, encourages substitution away from labor, and creates unemployment. It reduces output and exports of the labor intensive good, despite higher prices and, less obviously, selection in the labor (capital) intensive sector becomes stricter (weaker). Exploiting rich regional variation in minimum wages across Chinese prefectures and using Chinese Customs data matched with firm level production data, we find robust evidence in support of causal effects of minimum wage consistent with our theoretical predictions."

I just wasn't sure I trusted their model or their data.