Starting in any baseline period, some workers may witness natural wage gains that render the increased minimum irrelevant upon phase-in. Others will disappear from the data entirely, and it isn’t clear whether these departures should be coded as transitions to non-employment or to employment not tracked by one state’s [unemployment insurance] system. And using an early baseline quarter causes the analysis to overlook a key segment of the low-wage labor market: those who have only recently entered it. For these reasons analysis of a cohort tracked from too early a point in time may reveal very small impacts on wages, employment, and earnings.One of the key results from that paper was that the minimum wage benefited only the more experienced workers, while less experienced workers were the same or worse off. Presumably, the more experienced workers are also likely to be the most productive, so are worthwhile for employers to continue to hire even at the higher minimum wage. Interestingly, this result is corroborated by another recent paper in a completely different context, by John Horton (New York University). Horton looked at the impact of imposing a minimum wage experimentally in an online job market:
The experiment in this paper was conducted in a large online labor market. In this market, a would-be employer writes job descriptions, labels the job opening with a category (e.g., “Administrative Support”), lists required skills, and then posts the job opening to the platform website. Workers generally learn about job openings via electronic searches. Workers submit applications, which generally include a wage bid (for hourly jobs) or a total project bid (for fixed-price jobs) and a cover letter... After a worker submits an application, the employer screens his or her applicants and can decide to make an offer or offers.Employers on the platform were randomly allocated to different minimum wages (or no minimum wage), and were not aware they were in an experiment. When workers submitted their bids, if their bid was below the minimum wage (for treated employers) they were instructed to increase their bid (the workers were also not aware there was an experiment going on). Horton found that:
Imposing a minimum wage raised the wages of hired workers, but this imposition also reduced hiring, albeit not by very much. In contrast, hours-worked fell sharply, with reductions as large as 30% in some sub-populations of job openings expected to pay low wages. Large reductions in hours-worked occurred even in sub-populations that saw no reduction in hiring. Presumably some of the reduction in hours-worked was caused by employers economizing on labor, and perhaps from improved worker morale. However, hours-worked also likely fell because treated employers hired substantially more productive workers, with productivity measured by pre-experiment worker attributes.Productivity was measured by the average past wage rate of the worker on the platform, but was robust to some alternative measures. Overall, the results suggest that increased minimum wages increase the earnings of those workers who continue to be employed, and reduces hours worked. Those are both pretty standard explanations from a supply-and-demand model of the labour market. That employers concentrate hiring on higher-productivity workers is a little more surprising (why wouldn't the employers try to do that already?), but not if you consider that those high-productivity workers might already be working their preferred number of hours and are only be willing to work more if wages are higher.
In any case, this latest evidence gives more food for thought in terms of the trade-offs associated with having a higher minimum wage.
[HT: Marginal Revolution, back in July]
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