Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
Upside of Inequality Oxford Unintended Consequences

AI Summary. Using American Community Survey data, the authors estimate that small minimum wage increases had no effect on employment while large increases had negative effects. Four years after the first increase, estimated employment effects approached −5pp for those aged 16–25 without a completed high school education and −3pp for all 16–21 year-olds.

Jeffrey Clemens and Michael Strain American Enterprise Institute
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While a state-level event study finds no employment effect from small minimum-wage hikes, imputation DiD estimates show that four years after large hikes, employment is ~5pp lower for 16–25-year-olds without a HS degree and ~3pp lower for all 16–21-year-olds.

Do large minimum wage increases reduce employment while small ones do not?

Core argument: Four years after enactment of the first increase, large minimum wage increases are estimated to reduce employment by roughly 5pp among individuals aged 16–25 without a completed high school education and about 3pp among all individuals aged 16–21.

Figure 4 reports our imputation difference-in-differences estimates for the effects of small and large minimum wage changes on employment among individuals aged 16–21 and among individuals aged 16–25 with less than a completed high school education. The samples are from the ACS [American Community Survey]. [The data span 2011-2019]. We compare estimates for large versus small increases. The estimates to the left of the vertical dashed lines reveal no concerning evidence of divergent preexisting trends. We find null effects for the states that enacted small minimum wage increases and negative effects for states with large minimum wage increases. By 4 years after the enactment of the first increase, the estimate has approached −5pp for individuals aged 16–25 with less than a completed high school education, and −3pp for the sample of all individuals aged 16–21. [Editor's note: The authors note that Section VIII of the paper, which contains the Figure 4 imputation DiD estimates, “presents estimates from a modern difference-in-differences estimator that falls outside of our pre-analysis plan.”  The results are somewhat larger than those reported in the Abstract.]

Takeaways by Macro Roundup® AI

  1. Four years after enactment of the first increase, large minimum wage increases are estimated to reduce employment by roughly 5pp among individuals aged 16–25 without a completed high school education and about 3pp among all individuals aged 16–21.
  2. States enacting small minimum wage increases show null employment effects, while states with large increases show negative effects, based on imputation difference-in-differences estimates using American Community Survey data spanning 2011–2019.
  3. The estimates for periods before enactment reveal no concerning evidence of divergent preexisting trends.

Related Articles:

  • The Heterogeneous Effects of Large and Small Minimum Wage Changes on Hours Worked: Evidence Using a Partially Pre-committed Analysis Plan — The authors estimate that hours worked fall substantially more in response to large minimum wage increases than small ones, with large statutory increases associated with a differential decline of 0.73 hours on average. The declines are larger for 16–25 year-olds without a completed high school education (-0.94 hours) than for all 16–21 year-olds (-0.51 hours).
  • Did California’s Fast Food Minimum Wage Reduce Employment? — The authors estimate that California's $20 fast food minimum wage, up from $16, raised fast food sector wages roughly 8% relative to the rest of the country while employment fell about 2.7% relative to fast food employment elsewhere in the US. Their median estimate implies 18,000 fewer California fast food jobs than otherwise.
  • Minimum Wages and the Rise of the Robots — State-level measures of exposure to industrial robots show substantial geographic variation across the US, with the highest concentrations in the Southwest, Midwest, and Northwest and the lowest in the Mountain West, parts of the South, and northern regions. The authors find state robot exposure is positively correlated with state minimum wage increases.

AI Summary. Comparing New Jersey restaurant menu prices with those in neighboring Pennsylvania, where the minimum wage was unchanged, the authors estimate that each $1 increase in the minimum wage raised the price of an item by 7.0 cents on average. Pass-through was larger for items requiring more employee preparation steps, adding 0.3 cents per additional step.

Kerry Papps and Michael Strain IZA Institute of Labor Economics
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.@MichaelRStrain @AEIecon evaluates minimum wage increases between 2019-24, and finds a $1 increase in the minimum wage increased the mean price of fast food items by 7¢, implying a “pass-through elasticity of around 0.13.”

How much do restaurant menu prices rise with the minimum wage?

Core argument: Using neighboring Pennsylvania, where the minimum wage was unchanged, as a control group in a difference-in-difference specification, the study finds substantially larger pass-through coefficients on items requiring more employee preparation steps.

In early 2019, New Jersey passed legislation raising the minimum wage to $15 over the following 5 years. The first phase of this took effect on July 1, 2019, when the minimum wage increased from $8.85 to $10, the second phase raised it to $11 on January 1, 2020, and the third phase raised it to $12 on January 1, 2021. The minimum wage was unchanged during this period in neighboring Pennsylvania, therefore this state provides an appropriate control group. Using a difference-in-difference specification, we find that these three rounds of minimum wage increases collectively raised the price of an item by 20.6 cents on average or that every $1 increase in the minimum wage raises prices by 7.0 cents. Prices should rise the most on items that are highly labor intensive and for which consumers have a greater taste for variety. Consistent with this, we find substantially larger pass through coefficients on items that require more steps by employees to prepare. For every additional preparation step, a $1 minimum wage increase raises the price of an item by an additional 0.3 cents.

Takeaways by Macro Roundup® AI

  1. Using neighboring Pennsylvania, where the minimum wage was unchanged, as a control group in a difference-in-difference specification, the study finds substantially larger pass-through coefficients on items requiring more employee preparation steps.
  2. For every additional preparation step, a $1 minimum wage increase raises an item's price by an additional 0.3 cents, consistent with larger increases on labor-intensive items.

Related Articles:

  • What’s Across the Border? Re-Evaluating the Cross-Border Evidence on Minimum Wage Effects — Earlier research using pairs of neighboring counties straddling state borders found no relationship between minimum wages and U.S. restaurant employment, but the authors show that result reverses when local economic areas are instead defined as multi-state commuting zones. Under that definition, they estimate an employment elasticity of −0.305 four years after a minimum wage change.
  • The U.S. Low-Wage Structure: A McWage Comparison — Using wage data from most U.S. McDonald's restaurants, the authors find that before the Covid-19 pandemic, differences in entry-level wages across states were strongly related to state minimum wages, with real wages rising only in the roughly half of states raising their minimums. The 2021 wage spike nearly eliminated those geographic differences and left the federal minimum wage near-irrelevant.
  • Do Minimum Wages Reduce Job Opportunities for Blacks? — The authors find evidence that higher minimum wages reduce employment among low-skill Black workers across every group examined — teens, high school dropouts, and young workers with at most a high school education — with larger effects for Black males, while such effects are not very detectable for whites.

AI Summary. Analysis of Current Population Survey data finds that underpayment relative to the legal minimum rises for workers across all racial and ethnic groups following minimum wage increases, especially among those aged 16 to 21, offsetting the equivalent of 10–20% of realized wage gains. Among young workers, the authors find the burden falls disproportionately on African American workers.

Jeffrey Clemens and Michael Strain National Bureau of Economic Research
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Underpayment of workers relative to the minimum wage increases in the aftermath of minimum wage increases and disproportionately impacts workers aged 16-21. @MichaelRStrain @AEIecon

Do minimum wage increases lead to more underpayment for some groups?

Core argument: Using Current Population Survey data, the authors find that the rise in underpayment following minimum wage increases is equivalent to between 10 and 20% of realized wage gains across the full sample.

Using Current Population Survey data, we find evidence that the incidence of underpayment rises substantially for workers across all racial and ethnic groups, in particular among the young, in the wake of minimum wage increases. The overall rise in the underpayment in the wake of minimum wages is equivalent to between 10 and 20% of realized wage gains across the full sample. In addition, we find evidence of two sources of heterogeneity in the rise in underpayment experienced by members of different racial and ethnic groups. Among young workers (those ages 16 to 21), we find evidence that the burden of underpayment falls disproportionately on African American workers. Underpayment may thus blunt the impact of minimum wage increases on wage gaps between young African American workers and other groups of young workers.

Takeaways by Macro Roundup® AI

  1. Using Current Population Survey data, the authors find that the rise in underpayment following minimum wage increases is equivalent to between 10 and 20% of realized wage gains across the full sample.
  2. The authors find evidence that the incidence of underpayment rises substantially for workers across all racial and ethnic groups after minimum wage increases, particularly among young workers.
  3. Among workers ages 16 to 21, the authors find evidence that the burden of underpayment falls disproportionately on African American workers, which may blunt the impact of minimum wage increases on wage gaps among young workers.

Related Articles:

AI Summary. The authors find state minimum wage increases account for only a modest share of the wage gains realized by minimum wage workers, with improving macroeconomic conditions and movement across occupations and industries appearing more important. Wage increases are the norm among minimum wage workers even absent minimum wage hikes.

Michael Strain and Jeffrey Clemens American Enterprise Institute
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.@MichaelRStrain @jeffreypclemens report that wage gains for near minimum-wage workers in states that increase the mandated minimum wage are similar to states without a minimum wage.

How much do minimum wage hikes drive low-wage workers' raises?

Core argument: Fewer than one-third of workers employed at the time of both Current Population Survey interviews remain in minimum wage jobs at the second interview twelve months later, the authors find.

We find that state minimum wage changes account for a modest fraction of the wage gains realized by minimum wage workers. Improvements in macroeconomic conditions and progression across occupations and industries appear to play a more significant role. We find that wage increases are the norm among minimum-wage workers, even in the absence of minimum wage increases. The twelve-month time horizon we can analyze in the Outgoing Rotation Groups of the Current Population Survey is quite far from being a career. Even over this relatively short horizon, fewer than one-third of those employed at the time of both interviews remain employed in minimum wage jobs at the time of their second interview. Second, the fact that this fraction has been quite stable over time suggests the operation of the labor market, at least with respect to the wage gains it delivers to low-wage workers, has not changed substantially over the last several decades. interview. Second, the fact that this fraction has been quite stable over time suggests the operation of the labor market, at least with respect to the wage gains it delivers to low-wage workers, has not changed substantially over the last several decades. It may be that some workers churn into and out of minimum wage jobs over a period of years.

Takeaways by Macro Roundup® AI

  1. Fewer than one-third of workers employed at the time of both Current Population Survey interviews remain in minimum wage jobs at the second interview twelve months later, the authors find.
  2. The authors find that state minimum wage changes account for a modest fraction of the wage gains realized by minimum wage workers, with improvements in macroeconomic conditions and progression across occupations and industries appearing to play a more significant role.
  3. Wage increases are the norm among minimum wage workers even absent minimum wage increases, and the authors suggest the stability of this pattern indicates the labor market's delivery of wage gains to low-wage workers has not changed substantially over several decades.

AI Summary. A randomized study of a two-year unconditional monthly cash transfer to below-subsistence households in Barcelona, averaging about €500 ($792 in purchasing-power terms) or nearly 50% of the national minimum wage, estimates households were 14% less likely to have a member working and main recipients 20% less likely, with effects persisting at least six months after the final payment.

Timo Verlaat, Federico Todeschini and Xavier Ramos Institute of Labor Economics
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A Spanish antipoverty program that gave recipients a cash transfer equivalent to almost 50% of the national minimum wage had strong negative labor market effects, with primary recipients 20% less likely to work relative to the control group. @iza_bonn

Does unconditional cash support reduce employment among poor households?

Core argument: Households receiving an unconditional monthly cash transfer in Barcelona were 14 percent less likely to have at least one member working after two years than control households, and main recipients were 20 percent less likely to work.

In this paper, we studied the employment effects of an antipoverty program that does not include any such conditions. The two-year program, implemented in Barcelona (Spain), consisted of a monthly cash transfer to households with income below the subsistence level. The benefit level depended on the household income, size, and composition. On average, households received roughly e500 ($792 PPP) per month, equivalent to nearly 50 percent of the national minimum wage. Although the benefit was household-based, transfers were made to the account of a designated household member, the main recipient. Our findings for overall impacts can be summarized in four parts. First, we find strong evidence for sizeable negative labor supply effects. After two years, households assigned to the cash transfer were 14 percent less likely to have at least one member working compared to households assigned to the control group; main recipients were 20 percent less likely to work. Second, negative employment effects persisted until at least six months after the last payment. Third, we find tentative evidence that effects are mainly driven by households with care responsibilities. Fourth, there is no evidence of effects on social participation and education-related activities.

Takeaways by Macro Roundup® AI

  1. Households receiving an unconditional monthly cash transfer in Barcelona were 14 percent less likely to have at least one member working after two years than control households, and main recipients were 20 percent less likely to work.
  2. The Barcelona program paid roughly €500 ($792 PPP) per month on average to households with income below the subsistence level, equivalent to nearly 50 percent of Spain's national minimum wage, with benefits scaled to household income, size, and composition.
  3. Negative employment effects of the two-year transfer persisted until at least six months after the final payment, with tentative evidence that effects were mainly driven by households with care responsibilities and no evidence of effects on social participation or education-related activities.

AI Summary. The authors estimate that a 10% increase in a state's effective minimum wage is associated with a 2.4% decline in job vacancies in the same quarter, and a 4.5% decline a year later in at-risk occupations where many workers earn at or near the minimum wage. Vacancies in low-education roles fall 3.8%.

Marianna Kudlyak Federal Reserve Bank Of Cleveland
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A 10% increase in state-level effective minimum wage reduces vacancies by 2.4% in the same quarter & 4.5% a year later in at-risk occupations.

Do minimum wage increases reduce job openings for low-wage workers?

Core argument: Kudlyak, Tasci, and Tüzemen find that a 10% increase in the state-level effective minimum wage reduces job vacancies by 2.4% within the same quarter, with a 4.5% decline a year later in at-risk occupations.

A 10% increase in the state-level effective minimum wage leads to a 2.4% reduction in job vacancies within the same quarter, with a more pronounced 4.5% decrease observed a year later in at-risk occupations. These occupations are characterized by a significant proportion of workers earning at or near the minimum wage, often requiring lower educational attainment and prevalent in areas with higher poverty rates. The decline in vacancies is attributed to firms' preemptive measures to cut job openings in anticipation of wage hikes. This effect is particularly evident in low-education roles, where vacancies drop by 3.8% following a minimum wage increase. The study highlights the differential impact of wage policy changes across various occupational sectors, emphasizing the vulnerability of low-wage workers to such economic shifts.

Takeaways by Macro Roundup® AI

  1. Kudlyak, Tasci, and Tüzemen find that a 10% increase in the state-level effective minimum wage reduces job vacancies by 2.4% within the same quarter, with a 4.5% decline a year later in at-risk occupations.
  2. Vacancies in low-education roles fall 3.8% following a minimum wage increase, with at-risk occupations defined by large shares of workers earning at or near the minimum wage and concentration in higher-poverty areas.
  3. Kudlyak, Tasci, and Tüzemen attribute the vacancy decline to firms cutting job openings preemptively in anticipation of wage increases.

We use a unique data set and propose a novel identification strategy to estimate the impact of minimum wage increases on labor demand as measured by vacancies, a labor market outcome variable that has not been studied in the large empirical minimum wage literature. Our identification strategy builds on the idea that not all occupations are similarly affected by minimum wage increases. A much larger fraction of workers earn at or near the prevailing minimum wage level in some occupations than in others. Intuitively, one would expect these occupations to be affected differently by a minimum wage increase. We formalize this idea by identifying six 2-digit occupations as potentially at-risk occupations....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. The 110 percent threshold is partly informed by the distribution of the minimum wage increases shown in Figure 3. 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. In Section 6, we show that our results are robust to variations in these two threshold level...Our results show statistically significant and large negative effects of minimum wage increases on vacancies in at-risk occupations. More specifically, vacancies in at-risk occupations drop by 2.4 percent in response to a 10 percent rise in the prevailing minimum wage relative to other occupations. This baseline result is driven by a strong preemptive response by firms cutting vacancies in advance of the minimum wage change. Furthermore, the decline in vacancies is larger for occupations that generally employ workers with lower educational attainment and those in counties with higher poverty rates....Workers who are more susceptible to the adverse effects of minimum wage hikes are naturally low-wage workers. If low-wage workers are more likely to be employed in occupations that do not require high levels of educational attainment, then we might expect to see more adverse effects from minimum wage increases on these occupations. In Column (3) of table 5, we see that this is indeed the case. We find that a 10 percent minimum wage increase reduces low-education vacancies by about 3.8 percent.

At-risk occupations

"...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...To identify at-risk occupations, we construct hourly wage distributions of the occupations at the two-digit level by state using micro-level data from the CPS. To construct these distributions, we use hourly wage information (from the fourth and eighth months interviews in the CPS). When hourly wage data are not available, we use weekly hours worked and weekly earnings to compute an hourly wage. We restrict our sample to employed individuals of age 16 and older, and exclude those who are self-employed or work without pay....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. The 110 percent threshold is partly informed by the distribution of the minimum wage increases shown in Figure 3. 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. In Section 6, we show that our results are robust to variations in these two threshold levels..."

Vacancy data

"...The vacancy data in our analysis come from the job openings data from the Conference Board as a part of its Help Wanted OnLine (HWOL) data series..."

"...Workers who are more susceptible to the adverse effects of minimum wage hikes are naturally low-wage workers. If low-wage workers are more likely to be employed in occupations that do not require high levels of educational attainment, then we might expect to see more adverse effects from minimum wage increases on these occupations. In Column (3) of table 5, we see that this is indeed the case We find that a 10 percent minimum wage increase reduces low-education vacancies by about 3.8 percent...."

Marianna Kudlyak, Murat Tasci, and Didem Tüzemen, "Minimum Wage Increases and Vacancies,"Federal Reserve Bank Of Cleveland Working Paper Series, April 2022https://www.clevelandfed.org/en/newsroom-and-events/publications/working-papers/2022-working-papers/wp-1930r-minimum-wage-increases-and-vacancies.aspx

The Evidence

AI Summary. A study of minimum wage increases in Los Angeles County finds restaurants in high-income areas raised prices by 5.9 percentage points more than those in areas under the state wage, while restaurants in low-income neighborhoods did not significantly raise prices but changed menus more often and closed at higher rates.

Christopher Esposito National Bureau of Economic Research
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Higher minimum wages were passed on to customers in high-income neighborhoods; in low-income neighborhoods, they were passed on to employers and landlords.

Do minimum wage costs fall differently on rich and poor neighborhoods?

Core argument: In high-income Los Angeles County neighborhoods, restaurant prices rose 5.9 percentage points more than in state minimum wage regions as restaurants passed higher labor costs onto customers.

The study reveals that in Los Angeles County, the impact of minimum wage increases varied by neighborhood income levels. In high-income areas, restaurants passed the higher labor costs onto customers through price increases, with prices rising by 5.9 percentage points more than those in state wage regions. Conversely, in low-income neighborhoods, restaurants did not significantly raise prices but instead altered menus more frequently and faced higher closure rates. This suggests that landlords and restaurant owners absorbed the wage increases. The geographical wage disparity led to demand shifts across wage borders, affecting restaurant viability and pricing strategies.

Takeaways by Macro Roundup® AI

  1. In high-income Los Angeles County neighborhoods, restaurant prices rose 5.9 percentage points more than in state minimum wage regions as restaurants passed higher labor costs onto customers.
  2. In low-income Los Angeles County neighborhoods, restaurants did not significantly raise prices after minimum wage increases, instead changing menus more frequently and closing at higher rates, which the study suggests reflects landlords and owners absorbing the increases.
  3. The geographic wage disparity within Los Angeles County shifted demand across wage borders, affecting restaurant viability and pricing strategies.

Christopher Esposito, Edward Leamer and Jerry Nickelsburg, "Who Paid Los Angeles' Minimum Wage? A Side-by-Side Minimum Wage Experiment in Los Angeles County," National Bureau Of Economic Research, June 2021, https://www.nber.org/papers/w28966

Restaurant Closures, “…The closure rate was notably higher in the southern portion of the City Wage Region. This is a part of the county with a larger proportion of lower income census tracts. The interior parts of the City Wage region and, Beverly Hills, West Hollywood, and Culver City in the State Wage region, more affluent parts of the county, had relatively low closure rates. In Table 10, we aggregate closures and compute closure rates at the strata level and, with raw closure rates reported for the reference group of restaurants (the State Non-Border) and closure rates relative to the reference group for the other three strata. Closure rates for restaurants in both high and low-income census tracts are shown to be higher in the City Border in Table 10. For robustness, we investigated the closure rate of restaurants using the alternative cross-border competitor construction described in Section 3. We report these results in Table 11. The first column of the table shows the closure rate for the reference group, State Wage restaurants not exposed to City Wage competitors. Columns 2-4 show closure rates relative to the reference group. State Wage Non-Border restaurants had a closure rate of 25.6% in low-income neighborhoods and 23.6% in high-income neighborhoods respectively. State Wage Border restaurants had lower closure rates, and City Wage Border restaurants had higher closure rates. The highest closure rates were for City Wage restaurants in low-income tracts that bordered on State Wage, low-income census tracts. In the City Wage region, the lowest closure rate was in the Non-Border high-income census tracts. is the same group of restaurants that also increased prices by the largest amount….”

Menu Changes, “…The above table provides evidence that restaurants changed their menus more frequently when subjected to the larger increase in the minimum wage. This result was particularly apparent among restaurants in high-income census tracts, where City Border and City Non-Border restaurants were respectively 4.5 and 13.3 percentage points more likely to change their menus than the reference group. If changes in menu items in response to the higher minimum wage are attempts by the restaurant to lower costs, then at least some of the incidence of the wage was borne by customers who purchased the inferior food items. Although we cannot determine if the menu changes served that purpose, the fact that they occurred more often at restaurants in low-income neighborhoods - where, as we found earlier, price increases were smaller- suggests that they may have been implemented to reduce costs…”

Who Paid Los Angeles' Minimum Wage? A Side-by-Side Minimum Wage Experiment in Los Angeles County: Extended Excerpt Image 1


"..In Figure 6, we color-code the four strata and pinpoint the restaurants in our sample. Two municipalities (Beverly Hills and West Hollywood) originally indicated that they would follow the City Wage but opted to follow the State Wage once it was passed by the state legislature. Because these two cities switched their intended wage schedule after we stratified our sample, the State Border stratum is overrepresented in our sample....To verify the quality of our price data, we compared the 6-month price changes from our survey with price changes from Bureau of Labor Statistics (BLS) “food away from home” price index for the Los Angeles Metropolitan Area (Figure 7). We use 3-month rolling averages to smooth the trends in the data. Though taken from different sources and imperfectly overlapping geographical regions, the price changes from our survey and the BLS data share some common patterns. For July 2017 through July 2018, price changes recorded by the price survey were higher than those recorded by the BLS index, but the changes in the series are strongly correlated. The series depart around January 2019, when price increases recorded by the price survey decreased while CPI-recorded price increases increased. The increase the CPI index is possibly explained by the inclusion of Orange County in LA Metropolitan Area CPI but not in our price survey. Orange County is subject to the CA State minimum wage, which increased by 9.1% on January 1, 2019, so price increases associated with the CA State minimum wage increase should materialize more strongly in price increases in the BLS CPI than in our price survey. The decline in price changes from our restaurant survey around January 2019 may also be explained by the relative high frequency of LA City restaurants that appear in our price survey sample. The LA City wage increased in July in 2018 and 2019. If price increases at City restaurants occurred shortly before or after increases in the City wage, we would expect average price increases for items in our price survey to have comparatively lower price growth around January 2019. Starting in April 2019, the two price change indices reached a common level and began a slight downward trend...."

"...In Table 4 we display mean price changes taken between rounds 1 and 7 of our price survey broken out by these eight groups of restaurants. The first column shows mean price changes for the reference group, State wage restaurants not exposed to City wage competitors, while columns 2-4 show price increases for the other three groups of restaurants relative to the reference group. The results presented in Table 4 provide a robustness check on the results presented in Table 3. Both tables report exceptionally large price increases in the high-income State Border region which had the lower increase in minimum wages. Moreover, when price changes are computed between different rounds of the survey (Appendix A) the same result is obtained. This shifts attention to the pre-equilibrium hypothesis regarding exceptional closures of restaurants in the City Border region discussed in Section 8. The price changes reported in Table 4 for restaurants in low-income census tracts, however, are different from our Table 3 statistics. Table 3 reports no statistically significant difference in price changes in any of the three low income regions. Table 4 reports large (7.3) and statistically significant price increases in the City Border. Caution should be exercised when interpreting this result because few observations (33) were taken of items in low-income census tracts in the City Border that were exposed to State wage competitors...."

Who Paid Los Angeles' Minimum Wage? A Side-by-Side Minimum Wage Experiment in Los Angeles County: Extended Excerpt Image 2


"...The results in Table 8 are not meaningfully different from those in Table 6. Therefore, the restaurant and item-level heterogeneity measured by our control variables does not explain the differences in price changes across the four strata. In particular, Table 8 shows that price increases in the City Border were not significantly greater than those in the State Non-Border. This result deviates from the propositions of our theoretical model in Section 4 and suggests that the restaurant industry in Los Angeles did not reach a long-run equilibrium during our 5-year study. With this caveat in mind, the results from our regression analysis allow for us to estimate the percentage of the minimum wage differential that fell on restaurant customers at restaurants located away from the minimum wage border. It is generally accepted that hourly labor costs for restaurants range from 15% to 20% of operating costs.4 Part of the labor costs come from workers with wages above the minimum wage level and so the percentage of total costs at restaurants that are impacted by minimum wage increases should fall at the lower end of that 15%-20% range. Between the first and last survey the difference in the change in the City and State wages was 22%. Multiplying the 22% by 15% yields a 3.3% greater increase in costs at City restaurants than at State restaurants. In highincome neighborhoods where competition from the lower wage region was mitigated by distance, restaurants increased prices by 5.9 percentage points more than those in the State-Non-Border (Table 8). Thus, most if not all of the incidence of the minimum wage differential between the City and State minimum wage increases is accounted for by price increases. Virtually none of the wage differential was passed on to customers through higher prices at restaurants in low-income neighborhoods. Logically, marginal restaurants unable to raise prices due to competition should be more likely to change menu items or to close. Therefore, we examine both of these hypotheses in the following analyses...."

New NBER looks at how minimum wage increase are "paid for" via pass throughs, in high income neighborhoods the higher costs were passed on to customers, in low income neighborhoods they fell on landlords and restaurant owners"...We exploit a geographical discontinuity in Los Angeles County, where in 2015 the City of Los Angeles passed a minimum wage law and in 2016 the State of California passed a different minimum wage law. This created two minimum wage schedules in the county that remained unequal for over five years. Using a novel data set from a multi-year price survey, our analysis shows that the incidence of Los Angeles City’s higher minimum wage fell on customers in high-income neighborhoods, and on landlords and restaurant owners in low-income neighborhoods.We further show that the mix of responses at restaurants subject to the LA City minimum wage, including price increases, menu changes, and restaurant closures, was affected by proximity to restaurants subject to the lower California State minimum wage..."
Core Finding, "... Specifically, we found that restaurants in high-income neighborhoods and located far from lower-wage competition passed most of the City Wage differential through to their customers by raising prices. Restaurants in low-income neighborhoods including those located near lower-wage competition were found to not have larger price increases than those in the State Wage region. Instead, restaurants in low-income neighborhoods changed their menus more often and restaurants exposed to lower-wage competition were more likely to close. We infer that the spatial discontinuity in minimum wages caused demand for restaurant meals to spill across the wage border and to nearby restaurants subject to the State Wage. In support of this inference, we found that State Wage restaurants in high-income census tracts and located near City Wage competition increased prices and were less likely to close than their nearby City Wage competitors....

Evidence, "...In the summer of 2015, the City of Los Angeles enacted a schedule of minimum wage increases that would reach $15/hour in July 2020. Los Angeles County, which encompasses the City of Los Angeles, is comprised of 88 governmental jurisdictions not legally subject to the City’s minimum wage ordinance. In 2016 California enacted a statewide schedule of minimum wage increases which set a minimum for all 89 jurisdictions. The California state schedule of increases differed from the City’s in three important ways. First the California state minimum wage would not reach $15/hour until January 2022. Second, the two minimum wages are indexed to the CPI, but the indexation starts earlier for the City’s minimum wage. Third, in a recession, the Governor of California can suspend increases in the state minimum wage thereby extending the lower wage longer, while the City’s wage has no such provision. Absent the latter two differences, the minimum wage in Los Angeles City and in a handful of jurisdictions within Los Angeles County that elected to follow the City’s minimum wage schedule will be $1 to $1.50/hour higher than in the rest of the County between July 2017 and January 2022 (Figure 1)....In our study, we control for neighborhood income levels because customers prefer restaurants close to where they live, and because residents of high-income neighborhoods may have relatively inelastic demand for restaurant meals. Thus, restaurant owners in these neighborhoods should, on average, be able to pass along additional wage costs to their customers without a reduction in sales. Tellingly, in low-income neighborhoods we find that restaurants subject to the City Wage did not have statistically significant price increase for existing menu items, but they did change menu items more often. Finally, we note that small mom-and-pop restaurants are only subject to minimum wage requirements on statutory employees. Family members working at the restaurant are not considered employees. Mom and-pop restaurants are more concentrated in low-income neighborhoods, and this might also help to explain the lack of price increases in these regions...Although increases in the minimum wage occurred throughout the four years of the survey, we do not find restaurants responding to individual between-round increases in the minimum wage by raising prices in a way that is coordinated with the minimum wage increases…"
"...Table 1 has regressions that put the moving pieces in these figures together, explaining the log of restaurant employment and wages as a function of (1) a lagged dependent variable to account for the persistence of departures from normal, (2) the log of the California minimum wage, (3) the log of the overall employment or wages depending on which is the dependent variable, and (4) quarterly dummy variables that measure departures from QTR=1, which is the omitted effect absorbed by the constant C. An important problem with this regression is that much of the County is subject to the City minimum wage which generally exceeds the State minimum wage. This means there is an omitted variable equal to the City wage minus the State wage, which is pretty constant except for the fact that the City increment comes in July while the State increment comes in January. A second, and possibly more important problem, is that the minimum wage schedules are announced in advance, and the response of employment and wages need not be timed with the arrival of the pre-announced increases. The third, and most important problem, is that there is no control group without any minimum wage increases. With those caveats, the regressions in Table 1 are quite interesting. Attention in this table is focused with shading green or red on the t-statistics greater than 2 or less than minus 2. For the employment variables, the effect that is most statistically apparent is the lagged dependent variable (persistence). This persistence reinforces our view that the response of employment to a schedule of future minimum wage increases cannot be timed to the minimum wage increments but must take into account the future minimum wages. Employment in limited-service restaurants tracks overall employment in a statistically discernable way while employment in full service restaurants does not.For wages, the persistence effect is not detectable, but both the minimum wage and the overall LA County wage are statistically significant. It is worth mentioning that the minimum wage coefficients in both employment equations are negative, though not statistically significant. This could be summarized with the conclusion that effects on wages are apparent with this kind of regression model because the law requires actual wages to move with the minimum wages but the effects on employment are disguised by the fact that employment changes are not necessarily timed to the minimum increase: there can be adjustments in advance and adjustments long after. These results do conform with the minimum wage literature which finds apparent wage effects but often no apparent employment effects. This is natural segue into our study of restaurant prices: To what extent do LA county restaurants pass on the rising wages to customers via price increases, and to what extent to the City and State minimum wages produce different increments in prices?..."

Ed Comment:No surprise restaurant workers in high-income neighborhoods gain wage increases when the min wage is raised. The problem is most of those workers are waiters who were not earning the min wage. They are not marginal workers. The marginal workers are waiters waiting on waiters. Seems those wage increases could not be passed through. I believe that raising the min wage, raises the wages of worker with wages above the min wage. That’s why dems want it—to buy votes. I think it’s a highly inefficient way to help the poor/least skilled workers. Studies that seem to track individuals indicate that lowest skilled workers suffer. Not obvious to me that raising the wages of workers earning more than the min wage is a net positive. For me, the marginal dollar is invested If they raise the wages of waiters, my investment goes down by that amount. We can always increase wages by reducing investment and increasing consumption. The question is whether than increases the NPV of consumption. For a person whose consumption is constrained, an increase in the min wages, just reallocates consumption—my guess is from money former spent on min wage workers to workers who earn/are worth more than the min wage. Why is that a good thing?

AI Summary. Evidence from California indicates a $1 minimum wage increase reduces affected workers' welfare by at least $1,590 a year, or 11.6% of total compensation, through firms' scheduling changes rather than job losses. The shares working above the 20- and 30-hour benefit-eligibility thresholds fall 23.0% and 14.9%.

Qiuping Yu Social Science Research Network
Date Posted:
Is Database:
Database

California evidence suggests $1 increase in minimum wage reduces impacted workers’ welfare by at least $1,590 annual, 11.6% of workers’ annual compensation.

Do minimum wage increases reduce worker welfare through scheduling changes?

Core argument: Evidence from California indicates a $1 minimum wage increase can reduce affected workers' welfare by at least $1,590 annually, equal to 11.6% of their total compensation, through changes in firms' scheduling practices.

Evidence from California indicates that a $1 increase in the minimum wage can reduce impacted workers' welfare by at least $1,590 annually, equating to 11.6% of their total compensation. This reduction is attributed to changes in firms' scheduling practices, including reduced hours, lower benefits eligibility, and less consistent schedules. Specifically, the percentage of workers with weekly hours exceeding 20 and 30, which are thresholds for retirement and healthcare benefits eligibility, decreases by 23.0% and 14.9%, respectively. Additionally, the deviation in weekly hours worked increases by up to 33.0%, and the starting time of shifts varies more significantly. These adjustments allow firms to save on benefit costs, which represent 27.5% of the total wage cost increase due to the minimum wage hike. Consequently, while employment levels remain stable, the distribution of hours among workers shifts, leading to a net welfare loss for those affected.

Takeaways by Macro Roundup® AI

  1. Evidence from California indicates a $1 minimum wage increase can reduce affected workers' welfare by at least $1,590 annually, equal to 11.6% of their total compensation, through changes in firms' scheduling practices.
  2. The share of workers with weekly hours above 20 and 30 — thresholds for retirement and healthcare benefits eligibility — falls by 23.0% and 14.9% respectively, with benefit savings representing 27.5% of the total wage cost increase.
  3. Deviation in weekly hours worked rises by up to 33.0% and shift start times vary more, while employment levels remain stable and hours are redistributed among workers.

More evidence that minimum wage increases reduced low skilled workers net welfare. In this case via several different channels, hour reduction, lower benefits eligibility and less consistent schedules based on evidence from a retailer in California.

Overall impact on workers, "...We further show that increasing the minimum wage can diminish worker welfare due to the changes in firms’ scheduling practices, even when it does not reduce the overall employment. For an average worker in a California store in our data,we estimate the net loss of welfare due to their reduction of hours, lower eligibility for benefits, and less consistent schedules (that resulted from a $1 increase in the minimum wage) to be at least $1,590 annually or 11.6% of the worker’s total wage compensation... loss in worker welfare due to the reduction in weekly hours, eligibility of benefits, and consistency of their work schedules is estimated to be $4,710 (= $1, 872 + $467 + $2, 371) annually, while the value that workers may derive from the reduced hours may be worth up to $3,120. As a result, the net loss in worker welfare is estimated to be at least $1,590 annually or 11.6% of the worker’s total wage compensation. We note that this net loss in worker welfare is entirely due to workers’ reduced eligibility for benefits and the consistency of theirs schedules not directly due to the reduced hours, when assuming workers can use all the reduced hours in their second jobs.

Evidence of The Unintended Labor Scheduling Implications of The Minimum Wage: Extended Excerpt Image 1

Impact on benefits, "This decrease in the average number of hours worked not only reduces total wages but also impacts workers’ eligibility for benefits. We show that the percentage of workers with weekly hours larger than 20 (who may be eligible for retirement benefits according to ERISA (1974)) and those with weekly hours larger than 30 (who may be eligible for healthcare insurance according to the Affordable Care Act (ACA)) decreases by 23.0% and 14.9%, respectively. These results suggest that, as the minimum wage increases, firms may strategically adjust their scheduling practice to reduce the number of workers who are eligible for benefits.This is consistent with the results in Clemens et al. (2018) which shows using survey data from the US that minimum wage increase reduces workers’ likelihood to receive healthcare insurance especially in the low wage sectors. To demonstrate the significant financial incentive for firms to do so, we provide a rough estimate of a store’s savings associated with reducing workers’ eligibility for benefits in Section 6.2.1."..."

Impact on change in consistency of workers schedule, "...Besides the direct reduction in total wage compensation and eligibility for benefits,we also show that increasing the minimum wage leads to less consistent worker schedules both in terms of the number of hours they work from one week to another and in terms of the timing of their shifts. In particular, for each $1 increase in the minimum wage, the absolute (relative) deviation in the number of weekly hours worked by each worker increases by up to 33.0% (6.7%). In addition, we show that the absolute (relative) deviation in the number of daily hours increases by up to 9.5% (2.0%). The absolute deviation in the starting time of the work shift increases by up to 9.8%..."
Implication for firms costs, "...In this subsection, we first provide an approximation of the savings in benefit costs for an average store in California in our data through the scheduling adjustments associated with the minimum increase of $1. This will help demonstrate the strong financial motivations for the stores to adopt the schedule adjustments. We then provide a rough quantification for the resultant total welfare loss of an average worker in a California store in our data from the scheduling adjustments. This will help demonstrate the importance of the scheduling implications when analyzing the effect of the minimum wage on worker welfare.... To this end, we consider the average annual cost of retirement benefits per worker for the retail store to be $1,228. The total annual cost of healthcare insurance and retirement benefits for the store is thus estimated to be $14,638 (= 15∗ (3, 800∗ 30.3%∗ 71.2% + 1, 228∗ 56.0%∗ 22.7%)). Based on our results in Section 5.1, when increasing the minimum wage by $1, the percentage of workers with weekly hours longer than 20 and 30 decreases by 23.0% and 14.9%, respectively. Meanwhile, the number of workers for an average store in California increases from 15 to 19. With such schedule adjustments, the total annual cost of healthcare insurance and retirement benefits for this average store is thus estimated to be $9,664 (= 19∗(3, 800∗15.4%∗71.2% + 1, 228∗33.0%∗22.7%)). Therefore, the annual reduction in healthcare and retirement benefit costs is $4,974 (= $14, 638 − $9, 664). Given that the total labor hours per week is 348 for an average store in California, the total increase in the annual labor cost as a result of $1 increase in the minimum wage is $18,096 (= 1∗52∗348), and the reduction in the benefit costs represents 27.5% of the total wage cost increase..."
Qiuping Yu, Shawn Mankad and Masha Shunko, "Evidence of The Unintended Labor Scheduling Implications of The Minimum Wage," Social Science Research Network, June 2021, https://papers.ssrn.com/sol3/papers.cfm

The sample, "...highly granular dataset of worker schedules from a medium-sized chain of fashion retail stores in the United States. Specifically, we study worker scheduling and minimum wage data from 2015 to 2018 for5,760 workers at 45 stores in California and 17 stores in Texas. All stores share the same brand. Our data include all workers employed at the stores. They are all paid by the hour, and most of them are paid with the minimum wage. The key advantage of our dataset is that it allows the precise measurements of labor hours for a store as a whole and for all individual workers within a store, as well as the timings of the shifts for each worker..."
The results, "...Our results show that the minimum wage has no statistically significant impact on the total labor hours employed at the stores, which is consistent with the literature on the employment effect of minimum wage, especially in the non-tradable sectors (e.g., retail and service)…However, we show that the way in which the stores allocate these hours among their workers does change. Specifically, when the minimum wage increases by $1, the number of workers scheduled to work each week goes up by 27.7%, while the average hours per worker per week decrease by 20.8%. For an average store in California, for example, these changes translate into four extra workers per week and five fewer hours per worker per week. This means, for an average worker in California paid the minimum wage, her total wage compensation is reduced by 13.6% when increasing the minimum wage from $11 to $12…”

Evidence of The Unintended Labor Scheduling Implications of The Minimum Wage: Extended Excerpt Image 2