Arindrajit Dube

Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties

We use policy discontinuities at state borders to identify the effects of minimum wages on earnings and employment in restaurants and other low-wage sectors. Our approach generalizes the case study method by considering all local differences in minimum wage policies between 1990 and 2006. We compare all contiguous county pairs in the United States that straddle a state border and find no adverse employment effects. We show that traditional approaches that do not account for local economic conditions tend to produce spurious negative effects due to spatial heterogeneities in employment trends that are unrelated to minimum wage policies. Our findings are robust to allowing for long-term effects of minimum wage changes. (c) 2010 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Do Minimum Wages Really Reduce Teen Employment? Accounting for Heterogeneity and Selectivity in State Panel Data

Traditional estimates of minimum wage effects include controls for state unemployment rates and state and year fixed-effects. Using CPS data on teens for the period 1990 – 2009, we show that such estimates fail to account for heterogeneous employment patterns that are correlated with selectivity among states with minimum wages. As a result, the estimates are often biased and vary with the source of identifying variation. Including controls for long-term growth differences among states and for heterogeneous economic shocks renders the employment and hours elasticities indistinguishable from zero and rules out any but small disemployment effects. Dynamic evidence further shows the nature of bias in traditional estimates, and it also rules out more negative long run effects. We do not find evidence of heterogeneous employment effects in different parts of the business cycle. We also consider predictable versus unpredictable changes in the minimum wage by looking at indexation of the minimum wage in some states.

The Economic Effects of a Citywide Minimum Wage

This paper presents the first study of the economic effects of a citywide minimum wage—San Franciscos adoption of an indexed minimum wage, set at

Minimum Wage Shocks, Employment Flows, and Labor Market Frictions

8.50 in 2004 and

Credible Research Designs for Minimum Wage Studies

9.14 by 2007. Compared to earlier benchmark studies by Card and Krueger and by Neumark and Wascher, this study surveys table-service as well as fast-food restaurants, includes more control groups, and collects data for more outcomes. The authors find that the policy increased worker pay and compressed wage inequality, but did not create any detectable employment loss among affected restaurants. The authors also find smaller amounts of measurement error than characterized the earlier studies, and so they can reject previous negative employment estimates with greater confidence. Fast-food and table-service restaurants responded differently to the policy, with a small price increase and substantial increases in job tenure and in the proportion of full-time workers among fast-food restaurants, but not among table-service restaurants.

Does Outsourcing Reduce Wages in the Low-Wage Service Occupations? Evidence from Janitors and Guards

We provide the first estimates of the effects of minimum wages on employment flows in the US labor market, identifying the impact by using policy discontinuities at state borders. We find that minimum wages have a sizable negative effect on employment flows but not on stocks. Separations and accessions fall among affected workers, especially those with low tenure. We do not find changes in the duration of nonemployment for separations or hires. This evidence is consistent with search models with endogenous separations.

Firm Entry and Wages: Impact of Wal-Mart Growth on Earnings Throughout the Retail Sector

The authors assess the critique by Neumark, Salas, and Wascher (2014) of minimum wage studies that found small effects on teen employment. Data from 1979 to 2014 contradict NSW; the authors show that the disemployment suggested by a model assuming parallel trends across U.S. states mostly reflects differential pre-existing trends. A data-driven LASSO procedure that optimally corrects for state trends produces a small employment elasticity (–0.01). Even a highly sparse model rules out substantial disemployment effects, contrary to NSW’s claim that the authors discard too much information. Synthetic controls do place more weight on nearby states—confirming the value of regional controls—and generate an elasticity of −0.04. A similar elasticity (−0.06) obtains from a design comparing contiguous border counties, which the authors show to be good controls. NSW’s preferred matching estimates mix treatment and control units, obtain poor matches, and find the highest employment declines where the relative minimum wage falls. These findings refute NSW’s key claims.

How Do Employers React to a Pay-or-Play Mandate? Early Evidence from San Francisco

Outsourcing of labor services grew substantially during the 1980s and 1990s and was associated with lower wages, fewer benefits, and lower rates of unionization. The authors focus on two occupations for which they can identify outsourcing in those two decades using industry and occupation codes: janitors and guards. Across a wide array of specifications, they find that the outsourcing wage penalty ranged from 4% to 7% for janitors and from 8% to 24% for guards. Their findings on health benefits mirror those on wages. Evidence suggests that the outsourcing penalty was not due to compensating differentials for higher benefits or lower hours, skill differences, or the types of industries that outsourced. Rather, outsourcing seems to have reduced labor market rents for workers, especially for those in the upper half of the occupational wage distribution. Industries with higher historical wage premia were more likely to outsource service work.

Threat Effects and Trade: Wage Discipline Through Product Market Competition

This paper estimates the effect of Wal-Mart expansion on wages, benefits, and skill-composition of retail workers during the 1990s. We exploit the spatial pattern of Wal-Mart diffusion, radiating outward from the original store in Benton county, Arkansas, to control for potential endogeneity in store openings using both instrumental variable and control function approaches. Estimates from state and county level data suggest that store openings reduced both the average earnings and health benefits of retail workers. At the county level, a new Wal-Mart is found to reduce retail earnings, on average, by .5 to .9 percent. Moreover, we find that changes in skill-composition explain only a small part of compensation reduction, indicating that the decline in retail wages reflect a reduction in labor market rents.

The Political Economy of Discretionary Spending: Evidence from the American Recovery and Reinvestment Act

In 2008 San Francisco implemented major health reform, becoming the first city to adopt a pay-or-play employer health spending mandate. It also created Healthy San Francisco, a new “public option” low-cost health access plan for the uninsured. This study evaluates employer-level health benefit offering responses to the pay-or-play mandate in the first year of implementation using the 2008 Bay Area Employer Health Benefits Survey and a difference-in-difference estimator. Although 92% of firms subject to the mandate already offered insurance prior to enactment, we find that 76% of firms had to expand benefits to comply with the minimum hourly spending requirement for each worker. Nevertheless, most surveyed San Francisco employers (61%) were supportive of the law. There is substantial employer demand for the public option, with 18% of firms using Healthy San Francisco for at least some employees, yet there is little evidence of firms dropping or restricting existing insurance offerings in the first year after implementation. A non-trivial portion of firms chose to meet the mandate by paying into health reimbursement accounts (14%). These results confirm that employer mandate details can have crucial effects on employer behavior. While there are important geographic and political characteristics of San Francisco that are important to bear in mind, San Francisco’s early experience suggests that implementation of a strong pay-or-play mandate is indeed feasible.