OPERASONG REP MUS 150
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Date Created: 10/22/15
Econ 150 Evidence on the E ects 0 Minimum Wa e Laws 1 History and Nature of Minimum Wage Legislation California minimum wage is 625 national minimum is 515 Higher of two will apply in any given state in most states federal minimum is higher domestic and agricultural workers are not covered by the minimum wage also in some states teenage subwage exists minimum wages are nominal not indexed to in ation over time the level of nominal and real minimum wages in a given state evolves something like this nominal wage real minimum w in ation 2 Econ 150 Time Series Evidence on the Effects of Minimum Wage Laws a number of studies have analyzed time series data on statelevel employment population ratios or unemployment rates and ask whether employment tends to fall or unemployment tends to rise when the real minimum wage is raised 5 Generally effects are found only for workers aged 1624 A typical study nds that a 10 increase in real minimum wage Causes a 6 drop in teen employment Causes a 2 drop in employment for 2024 year olds The former result suggests an elasticity of demand 06 which would mean that total teenage labor income increases as a result of the minimum wage But this is misleading because even among teenagers most workers earn more than the minimum wage Therefore a minimum wage increase of 10 raises the average teenwage wage by much less than 10 a correct calculation of labor demand elasticity must take this into account and could yield an elasticity considerably above 1 in absolute value Case Study Evidence The Fast Food Industry Card and Krueger 1994 studied the effects of raising the minimum wage on employment in the fast food industry interviewed 410 fast food restaurants in New Jersey and eastern Pennsylvania before and after April 1 1992 In April 1 1992 7 NJ raised minimum wage from 425 to 505 but Penn did not Pennsylvania was considered to be the control group Did employment in NJ go up or down relative to Penn Full time equivalent FTE employment PA NJ Before 2333 2044 After L17 2103 Change 2 16 059 275 No it didn t Relative to PA employment in NJ restaurants increased by 275 FTE workers Econ 150 Card and Krueger therefore claim that minimum wages did not reduce employment by fastfood restaurants were not able to address issue of whether minimum wage prevented new restaurants from opening up also didn t have any information on whether minimum wage increases changed the mix or quality of workers hired by these restaurants 4 Panel Data Evidence Currie and Fallick 1996 address the issue of minimum wages and labor quality by looking at the employment of individual workers before and after a minimum wage increase To do this they use a panel data set one where the same individuals are surveyed every year in some cases for 20 years or more They used the National Longitudinal Survey of Youth looked at employment before and after an increase in the federal minimum wage in January 1979 the federal minimum increased from 290 to 310 in January 1980 it increased from 310 to 335 looked only at teenagers who were employed in the year preceding the minimum wage hike asked which ones were still employed a year later as a measure of how much each person s wage was raised by the minimum wage law defined the variable WAGEGAP WAGEGAP 0 if wt1 ltmin 1 if ea1ning less than original min shouldn t be affected WAGEGAP 0 if wt1 gt min t if already ea1ning more than min shouldn t be affected WAGEGAP min 7 wt1 ifmint lt wt1ltmint1 Econ 150 Min waget WAGEGAP Actual wage tl Min wage tl Cunie and Fallick found that workers with larger values of WAGEGAP were less likely to be employed the year after a minimum wage increase than workers with smaller values of WAGEGAP Overall the average wage increase caused by these legislative chances caused a 3 decrease in probability of being employed in the following year those most likely to become unemployed were at relatively low wages to begin with Neumark and Wascher have an article that extends Currie and Fallick s analysis to ask whether minimum wage laws affect teenagers decisions to stay in school or not They found that minimum wage laws increased the dropout rate by making work more attractive relative to school Living Wage Ordinances I History and Nature of Living Wage Ordinances These are a kind of minimum wage law that are passed at the municipal level over 25 cities have them now Baltimore was the first in 1996 higher than state and federal minimum Examples Baltimore 790hour Los Angeles 730 w health bene ts or 864 wo bene ts San Jose 950 w health bene ts or 1015 wo bene ts coverage is restricted to rms with contracts with city or for rms receiving aid from city Econ 150 2 Theory Likely Effects of Living Wage Ordinances Likely effects differ from minimum wage laws because coverage is much more limited To see this consider the case where there is a xed number of unskilled workers available in a city w 71m w original wage 9 LC covered sector w liv original wage Wu gt I H uncovered sector the living wage law forces some workers out of the covered sector who then rather than becoming unemployed will look for work in the uncovered sector thus we don t expect unemployment to rise but expect to see wage declines in the uncovered sector Econ 150 note also that even if LWO s raise wages overall they won t have a big effect on poverty unless lots of lowwage workers live in poor households Do they No one has looked at this question for LWO s speci cally but Burkhauser looked at the 1990 increase in the federal minimum wage According to Burkhauser 13 of the workers affected by this increase live in poor to nearpoor families up to 15 times poverty line But another 13 are in families with income greater than three times federal poverty line 3 Evidence Actual Effects of Living Wage Ordinances Neumark and Adams results on effects of LWO s adopted in the late 1990 s effects on wages of lowwage workers bottom 10 very small increase effects on hours worked by lowwage workers bottom 10 little change effects on employment rate among lowwage workers significant decline effects on a city s poverty rate small decrease in poverty Econ 150 Labor Market E Zects of Immigration 1 Theory a A preliminary result reading labor demand curves backwards Recall that on the rm level we read a labor demand curve by starting on the vertical axis and going over to the labor demand curve lefthand diagram The individual rm is a wagetaker For any given wage the labor demand curve tells us how many workers it wants to hire to get the labor demand curve for the market as a whole we sum individual rms labor demand curves horizontally now consider a labor market e g a city with a xed total number of workers thus its labor supply curve is a vertical line The equilibrium wage in that market must be at the intersection of the vertical supply and downwardsloping labor demand curves as shown in the righthand diagram below Thus at the market level and when labor endowments are exogenously given we can read labor demand curves starting on the horizontal axis For any given amount of available labor the height of the demand curve tells us the equilibrium wage that will prevail in that labor market Firm level Demand Curve Market level Demand Curve w w given wage equil wage Firm by Li Given Pro tmaximizing labor supply Labor demand Econ 150 b E ects ofimmigration when there is only one type oflabor Now consider a labor market e g a city with a xed initial stock of labor which then experiences an exogenous in ow of labor What happens to equilibrium wages total labor income etc W1 Market demand L0 L1 immigration causes a decrease in equilibrium wage total labor income of native workers before immigration BC after immigration C Thus native workers are hurt by immigration total labor income of immigrants E presumably this is more than they earned in the source country so they gain total nonlabor income before immigration A total nonlabor income after immigration ABD So native owners of other inputs gain if all nonlabor income goes to natives then total income of natives after immigration increase by D the immigration surplus Econ 150 0 Effects of Immigration when there are dz rent kinds of labor in reality workers are not all the same they are not perfect substitutes immigrants have a different miX of skills than natives they consist disproportionately both of very unskilled workers and of very skilled workers fraction of workers for United States for immigrants 0 22 years of Education Predicted effects of immigration of one type of worker on the equilibrium wages of another kind of worker depend on whether the second worker s marginal productivity is increased or reduced by increased supply of the first Mathematically if the production function is F L1 L2 this is given by the cross partial derivative of the production function 62F 6L16L2 or F Theoretically this can go either way Examples 1 FL17L2 le sz F12 lt 0 the two labor types are substitutes adding one more type2 worker will decrease the productivity of the typel workers 2 F L1 L2 le sz F12 0 independentseparable adding one more type2 worker will does not affect the productivity of the typel workers
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