Datasets:
Kunj07
/
openwebtext

Dataset card Data Studio Files Community
text
stringlengths
0
108k
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).