There are a number of ways that employers can respond to higher minimum wages. Perhaps they reduce the number of workers that they hire. The evidence on that remains somewhat contested. My interpretation of where we have gotten to is that minimum wages reduce employment a little, that employment reduction is concentrated among young and/or low-skilled workers, and that employers adjust along other margins as well.
Most studies looking at the disemployment effects of minimum wages focus on employment. However, if employers respond to a higher minimum wage by reducing employment, that will also show up in a reduction in the number of job vacancies. That is the approach adopted in this recent working paper by Marianna Kudlyak (Federal Reserve Bank of San Francisco), Murat Tasci (Federal Reserve Bank of Cleveland), and Didem Tüzemen (Federal Reserve Bank of Kansas City). They use U.S. data on the number of job openings from Conference Board's Help Wanted On-Line database over the period from 2005 to 2018. Importantly, the data is at the occupation level, so Kudlyak et al. can define occupations that are 'at-risk' from minimum wage changes separately from those that are not at-risk. They explain that:
We designate an occupation as an “at-risk occupation” if a large share of workers in the occupation earn at or close to the effective minimum wage...
First, we designate workers who earn at or below 110 percent of the effective state-level minimum wage as those who earn close to the minimum wage... Second, we consider an occupation to be in the at-risk group, if during the entire sample period, the fraction of workers earning at or below 110 percent of the effective minimum wage is at least 5 percent...
Using this approach, we identify six at-risk occupations: (1) food preparation and serving-related occupations (SOC-35), (2) building, grounds cleaning and maintenance occupations (SOC-37), (3) personal care and service occupations (SOC-39), (4) sales and related occupations (SOC-41), (5) office and administrative support occupations (SOC-43), and (6) transportation and materials moving occupations (SOC-53).
Interestingly, they find that the same six occupational groupings are designated as 'at-risk' in every state using this method. That shows a surprising (to me, at least) consistency in occupational wage structures across the country. Having defined at-risk and other occupations, Kudlyak et al. can then compare what happens to the number of county-level vacancies in the at-risk occupations with what happens to the number of county-level vacancies in the not-at-risk occupations, when the state-level minimum wage increases. They find:
...a statistically significant and economically sizeable negative effect of the minimum wage increase on vacancies. Specifically, a 10 percent increase in the level of the effective minimum wage reduces the stock of vacancies in at-risk occupations by 2.4 percent and reduces the flow of vacancies in at-risk occupations by about 2.2 percent.
They also find that there is:
...a strong preemptive response by firms as well as a long-lasting dynamic response. We find that firms cut vacancies up to three quarters in advance of the actual minimum wage increase. This finding is consistent with the firms’ desire to cut employment and vacancies being a forward-looking tool to achieve it.
So, firms anticipate minimum wage changes, and if they want to reduce employment, they reduce the number of vacancies before the minimum wage change takes effect. Then, looking at the effects on occupations that vary by the educational level of the workers, Kudlyak et al. find that:
...occupations that typically employ workers with lower educational attainment (high school or less) are affected more negatively than vacancies in other occupations. The negative effect on vacancy posting is exacerbated in counties with higher poverty rates, which highlights another trade-off that policymakers might want to take into account.
That is probably the most disappointing aspect of this research. Governments may want to increase minimum wages to help out low income and low-skilled workers, but it seems that this study is providing further evidence that those are the workers that are most negatively affected by the minimum wage.
[HT: Marginal Revolution]
Read more:
- A bunch of research findings on minimum wages in New Zealand
- The disemployment effects of Canadian minimum wages
- Jeffrey Clemens on the disemployment effects of the minimum wage
- The impact of an online minimum wage
- Seattle's minimum wage, revisited
- The latest evidence supports negative employment effects of the minimum wage
- Latest research suggests the minimum wage DOES reduce employment
- More empirical support for the disemployment effects of the minimum wage
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