US Studies Find Higher Minimum Wage May Have Losers

15:31  11 january  2017
15:31  11 january  2017 Source:   The New York Times

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Although minimum wage advocates often cite helping poor families as the primary justification for raising the minimum wage , this study finds that the majority of the poor can actually lose from such wage hikes even if they do not lose jobs, work opportunities or benefits. Either way, the employees bear the cost for the higher wages in their reduced work. The authors note that many other researchers have studied and measured such losses. Second, if the firm is sufficiently profitable an employer may accept lower profits.

The priced-out jobs clearly distinguish winners and losers under the new higher minimum wage level. However, other factors could mitigate or nullify this effect: reductions in labour turnover; improvements in organizational efficiency; reductions in wages of higher earners; and small price increases. Schmitt (2013) in his review points to these factors that may in part explain why some studies found no disemployment effects of a hike in the minimum wage .

A McDonald’s in Manhattan. When forced to pay more, many employers hired more productive workers, a researcher concluded. © Brendan Mcdermid/Reuters A McDonald’s in Manhattan. When forced to pay more, many employers hired more productive workers, a researcher concluded.

CHICAGO — A growing number of economists have found that many cities and states have considerable room to raise the minimum wage before employers meaningfully cut back on hiring.

But that conclusion may gloss over some significant responses to minimum-wage increases by individual employers, according to two new studies. And those reactions may, in turn, raise questions about the effectiveness of the minimum wage in helping certain workers.

The findings, presented over the weekend at the annual meeting of the American Economic Association, the nation’s premier gathering of academic economists, come as many cities and states are raising their minimum wages. California and New York last year approved gradual increases to $15 per hour. Proponents argue that raising the minimum is one of the most practical ways of improving living standards for the working poor and reducing inequality.

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Some studies do not find that minimum wages lead to fewer jobs. Living wage policies, adopted by some municipalities in the US, may help reduce poverty. Targeted tax credits do a better job of reaching the poor than minimum wages do. Whether a minimum wage reduces poverty or helps low-income families then depends on where along the distribution of family incomes these winners and losers are located. Clearly, the effect on jobs is critical: If a higher minimum wage does not destroy jobs, then from the government’s perspective it is a free lunch that helps reduce poverty, even if higher -income

4. Why might the minimum wage be an inecient approach to reducing poverty? A recent study found that only 19 percent of those who would gain from an increase in the minimum wage were actually poor (according to the poverty threshold). Workers who are employed and now earning the higher minimum wage are represented by span A. To summarize the winners and losers in this scenario

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To test that proposition, John Horton of New York University conducted an experiment on an online platform where employers post discrete jobs — including customer service support, data entry, and graphic design — and workers submit a proposed hourly wage for completing them.

Mr. Horton, working with the platform, was able to impose a minimum wage at random on one-quarter of about 160,000 jobs posted over roughly a month and a half in 2013. If a worker proposed an hourly wage that was below the minimum, the platform’s software asked him or her to raise the bid until it cleared the threshold. In some cases the minimum wage was $2 per hour, in some cases $3, and in some cases $4.

At first glance, the findings were consistent with the growing body of work on the minimum wage: While the workers saw their wages rise, there was little decline in hiring. But other results suggested that the minimum wage was having large effects. Most important, the hours a given worker spent on a given job fell substantially for jobs that typically pay a low wage — say, answering customer emails.

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Michael Saltsman: Study found state minimum wage hikes didn't reduce poverty rate. Increase lowers employers' demand for low-income workers, he says. Businesses need to grow, invest, he writes, but they can't, if they have higher costs. Research from economists David Neumark, Mark Schweitzer and William Wascher found a higher minimum wage results in a net increase in the proportion of families who are poor or near-poverty -- meaning that the " losers " from a minimum wage increase outnumber the "winners."

The IOE states that minimum wages have winners and losers , and that there is a need to assess carefully whether they achieve their intended objectives or consequences. The IOE also argues that minimum wages should not be promoted as a singular policy response. If set too high , the pool of people most disproportionately affected by these changes will be those who generally seek labour at a minimum wage – low skilled, unemployed women who head up single parent households. Furthermore, studies show that raising the minimum wage may increase the likelihood and duration

Mr. Horton concluded that when forced to pay more in wages, many employers were hiring more productive workers, so that the overall amount they spent on each job changed far less than the minimum-wage increase would have suggested. The more productive workers appeared to finish similar work more quickly.

The traditional way most studies determine if employees are hiring a different kind of worker after the minimum wage rises is to consider certain characteristics, like race, age and education level.

The problem is that one worker can be much more productive than another with the same demographic profile, potentially masking the productivity upgrade that Mr. Horton documents. He was able to overcome this problem because the platform gave him access to precise data reflecting productivity, like past wages.

When the minimum wage increased, employers tended to hire workers who had earned higher wages in the past, suggesting that they were looking for a more productive work force.

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The study finds that the poverty effects of minimum wages are generally small but positive. The partial equilibrium model shows, however, that the decline in poverty is statistically insignificant at high wage elasticity levels when employment losses are large and therefore offset gains from higher South Africa’s large numbers of working poor and the elements of labour market discrimination inherited from the past are strong arguments in support of minimum wages in this country. As with most economic shocks, however, minimum wage policies may create winners and losers , the latter being

One thing is certain: No matter what side of the fence you’re on, there will be winners and losers . the cut-and-sew companies that might employ five workers on the low side or about 20 on the high side — may cut According to the study , a 10 percent increase in the minimum wage is associated with a 1 “I can say that it is very hard to find evidence that a higher minimum wage reduces poverty or

If the pattern Mr. Horton identified were to apply across the economy, it would raise questions about whether increasing the minimum wage is as helpful to those near the bottom of the income spectrum as some proponents assume. The higher minimum wage could cost low-skilled workers their jobs, as employers rush to replace them with somewhat more skilled workers.

“There’s nothing about my paper that says raising the minimum wage is a bad idea — it may be that the trade-off is worth making,” Mr. Horton said. But there is “this consideration we probably haven’t considered.”

Some economists are skeptical that employers would respond the way Mr. Horton describes if an entire city or state increased its minimum wage, as opposed to just a single employer or subset of employers.

“I think the way to relate this result to the real world labor market is to consider what would happen if Walmart had to raise wages,” said Arindrajit Dube, an economist at the University of Massachusetts at Amherst, who has studied minimum wage laws.

Walmart has said that after it increased wages in 2015, it was able to attract more productive workers.

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Studies indicate that a higher minimum wage does not hurt immigrants, but there is no consensus on whether immigrants benefit at the expense of natives. Studies also reach disparate conclusions on whether higher minimum wages attract or repel immigrants. Alternatively, high -skilled workers may benefit if they are substitutes for low-skilled workers, who become relatively more expensive as a result of the minimum wage . There are also winners and losers among consumers.

Regarding the effect of a minimum wage hike on high school students' enrollment, most research suggests that an increase in the minimum wage may have its most detrimental effect on teenagers (Brown et al. 1982). A recent study by Neumark and Wascher (1995) found that a minimum wage hike would not only reduce teen employment opportunities, but would also induce some teens to drop out of school in search of work.

“This experiment is probably telling us much the same thing,” Mr. Dube added in an email. “But if we want to know what would happen if N.Y. or C.A. raised its minimum wage to 15/hr, I doubt that this online experiment — neat as it is — will shed much light.”

When the minimum wage goes up for everyone, it is not so easy for employers to substitute better-skilled workers because the new minimum would not offer a more attractive wage. In many cases, more highly skilled workers see their wages rise after minimum-wage increases to keep them above the new minimum, making it all the more difficult to lure them away.

Zane Tankel, chief executive and equity partner in a group that owns and operates several dozen Applebee’s restaurants in the New York City area, said replacing low-skilled workers with higher-skilled ones after the state’s recent minimum-wage increases is “not something that we try to do.”

Mr. Tankel argued that differences in the productivity of low-level workers in his industry are not very big. “It’s just a lot more money for the exact same job description,” he said. He is accelerating automation in his restaurants, including tablet devices for ordering certain items and payment, to offset the costs of the higher minimum.

Mr. Horton is quick to acknowledge that there are many reasons his experiment might not capture employer behavior in the wider economy. But he says a higher minimum wage could attract more highly skilled workers who were not previously in the labor market — say, college students. At the same time, less-skilled workers might lose their jobs and drop out of the labor force.

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Among specific sub-groups of minimum wage earners – women with less work experience, and young adults without a high school diploma – the authors find evidence that minimum wage increases create winners and losers . The existing empirical evidence on the effect of minimum wage increases on means-tested public program participation is mixed. Some studies find that higher minimum wages increase welfare caseloads (Page et al.

Some studies do not find that minimum wages lead to fewer jobs. Living wage policies, adopted by some municipalities in the US, may help reduce poverty. Targeted tax credits do a better job of reaching the poor than minimum wages do. Whether a minimum wage reduces poverty or helps low-income families then depends on where along the distribution of family incomes these winners and losers are located. Clearly, the effect on jobs is critical: If a higher minimum wage does not destroy jobs, then from the government’s perspective it is a free lunch that helps reduce poverty, even if higher -income

More broadly, he said, the contribution of his paper is to show that one impulse of many employers in the face of a minimum-wage increase will be to find more productive workers, even if there are limits on how much they can follow through on this desire.

“There are lots of reasons to think this is probably happening and we haven’t detected it because we don’t have the data,” he said. “I know in my career, people have fine-grained opinions about who’s better than who, and we talk about them endlessly. We’re constantly ranking. But when we talk about other labor markets, we pretend the same distinctions don’t exist.”

A second study presented at the conference suggests another way that employers may respond to a rising minimum wage: simply going out of business.

The husband-and-wife research team of Michael Luca of Harvard Business School and Dara Lee Luca of Mathematica Policy Research identified the ratings of tens of thousands of restaurants in the San Francisco area on the website Yelp and found that many poorly rated restaurants tend to go out of business after a minimum-wage increase takes effect.

By contrast, highly rated restaurants appear to be largely unaffected by minimum-wage increases, and over all, there is no substantial rise in restaurant closings after a minimum-wage increase.

Though the couple’s study is still being refined and they have yet to explore the reason, one possibility is that workers at poorly rated restaurants tend to be less productive than workers at highly rated restaurants, making it difficult for those restaurants to survive when paying workers more. (It’s also possible that highly rated restaurants are better able to pass rising costs on to their customers.)

The results are broadly consistent with a 2013 study by the economists Daniel Aaronson, Eric French and Isaac Sorkin, showing that a sizable minimum-wage increase in New Jersey resulted in many lost jobs as numerous businesses closed, but an almost offsetting number of new jobs as other businesses opened, which the authors argue were more productive.

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