Minimum Wage Increases and Individual Employment Trajectories

Ed Comment, “This seems like it. seems I have somewhat misremembered it. this raises an interesting point about worker who don’t have jobs so wont lose their job but they wont get a job in the future. Does the new cbo report speak to this issue? My guess is lots of them don’t have jobs now too.”

You did write twoblogpostson it at the time reporting on their estimates of employment impacts (this language is from the second one) on marginal workers, “…The most damning aspect is the report’s implicit acknowledgment that raising the minimum wage hurts marginal workers by reducing their chances for employment. The report estimates that raising the minimum wage will imposed three times as many job losses on marginal workers as adults generally. Nevertheless, the report concludes that overall job losses suffered by marginal workers are likely to be low because few marginal workers currently have jobs. Twenty-three percent of African-American workers between the ages of 20 and 24 years old, for example, are unemployed. For the least skilled among those workers, the unemployment rate is even higher. Those workers are unable to produce $7.25 of value in an hour of work—the amount of the minimum wage—that customers are willing to buy, and so remain unemployed. Raising the minimum wage to $10.10 per hour will make it that much harder for those workers to find economically viable work. So in addition to the 500,000 workers who can produce $7.25 of value in an hour but not $10.10—individuals who the CBO expects will lose their jobs outright—there are many currently unemployed workers who will find it even harder to find work, especially low-skilled entry-level work that serves as a gateway to a lifetime of employment….”

So I looked at the2014 CBOreport on “The Effects of A Minimum-Wage Increase On Employment And Family Income” we had read.

Neumark also makes this point, “.. Second, labor-labor substitution may be important, with employers substituting away from the lowest-skilled workers and toward other workers when the minimum wage increases….”

"... Essentially all of the earnings increases accrue to the more experienced half of the low-wage workforce. The less experienced half saw larger proportionate decreases in hours worked, which we estimate to have fully offset their gain in wages, leaving no significant change in earnings. More experienced workers were also more likely to supplement their Seattle income by adding hours outside the city. Finally, conditional on being employed, both less and more experienced workers were more likely to remain employed by their baseline Seattle employer, implying an 8% reduction in labor turnover rates....Using administrative employment data from the state of Washington, we use short-duration longitudinal panels to study the impact of Seattle’s minimum wage ordinance on individuals employed in low-wage jobs immediately before a wage increase. We draw counterfactual observations using nearest-neighbor matching and derive effect estimates by comparing the “treated” cohort to a placebo cohort drawn from earlier data. We attribute significant hourly wage increases and hours reductions to the policy. On net, the minimum wage increase from $9.47 to as much as $13 per hour raised earnings by an average of $8-$12 per week. The entirety of these gains accrued to workers with above-median experience at baseline; less-experienced workers saw no significant change to weekly pay. Approximately one-quarter of the earnings gains can be attributed to experienced workers making up for lost hours in Seattle with work outside the city limits. We associate the minimum wage ordinance with an 8% reduction in job turnover rates as well as a significant reduction in the rate of new entries into the workforce... Overall, evidence suggests that employers responded to higher minimum wages by shifting their workforce toward more experienced workers..Seattle’s minimum wage increase appears to have successfully increased the labor market income of the most experienced workers in low-wage jobs, arguably those for whom low-wage work most resembles the “dead end” archetype. The losses in employment opportunities appear to have been concentrated among the least experienced workers, or those attempting their first entry into the labor market. While this may suggest that the low-wage labor market has lost some of its capacity to serve as an “avenue of advancement,” younger workers may be better able to compensate for this loss through education, training, or other mechanisms that allow them to bypass the low wage labor market entirely.

Bottom line, “…Overall, evidence suggests that employers responded to higher minimum wages by shifting their workforce toward more experienced workers..Seattle’s minimum wage increase appears to have successfully increased the labor market income of the most experienced workers in low-wage jobs, arguably those for whom low-wage work most resembles the “dead end” archetype. The losses in employment opportunities appear to have been concentrated among the least experienced workers, or those attempting their first entry into the labor market….”

Will work on finding the CBO report you mention. However this more recent 2018 (Jardim) study makes your point about the compositional impact of minimum wage hikes (using evidence from the Seattle study) very effectively that would work very well. Let me know if this is what you are thinking of? Do you still need that older CBO report?

“…..I also remember anold CBO report saying something about 3:1 low skilled job losses in the footnotesthat I mentioned on Betty Liu the day after my first IQ 2 debate on inequality. So the 1.4 million job loss is really a much larger number of low skilled losing their jobs offset by more skillful part time housewives and students getting hired to (partially) take their place. I recall a study of San Fran workers making this point. A reference to it might be in one of the blog entries. Please look for it…”

I also saved a comment you made on a Washington Post Op-Ed (attached) on trade offs related to minimum wage, Ed Comment: Lots of misleading stuff here. Politicians often allow min wage to rise when market wages rise (more) and employment is low, so any simple correlation between min wages and employment is misleading. And raising the min wage when it's below the market, should have little if any effect--on wages or employment. Further, market wages have risen over time. What matters is whether you can raise min wages above the market and have it increase wages. If it could, why not raise the wage to $100,000 per year? Let's raise it all over the world and eliminate poverty. You/we know the truth. More importantly, a portion of the essential truth about minimum wages is revealed in the article. Productivity rises when min wages rise. Why? When employers are forced to pay higher wages, they substitute more productivity workers--part time students and mothers, older workers, etc. All workers are paid the wage required to get one more worker of a given skill level to join the workforce, if/when the value that worker can add to a customer is greater than the wage required to get another worker to work (economics calls this the marginal product of labor). In addition, the market pays a very low-skilled worker who requires a lot of supervision the wage of a low-skilled worker who requires less supervision less the cost of the extra supervision to make the very low-skilled worker as productive as the low-skilled worker. So if you raise the wage of a very low skilled worker by fiat (i.e. by raising the min wage), more workers at (all) higher skill levels will join the workforce. Employment won't necessarily go down, and wages of workers will go up (because more higher skilled workers will join the force), so will productivity (because more productive workers join), but so will the unemployment of the least skilled workers, which has been increasingly documented as data has become more avaible

CBO also has an analysis of the current proposal (largely based off their previous report) and continue to find strong employment effects. -1.4mm workers (.9%) at the same time the number of people in poverty would be reduced by almost 1mm (.9mm). Note this is stronger than their last analysis which estimated employment would fall by 1.3mm workers (that change was driven by a decision to use mean as opposed to median) Key takeaway on employment effects, "....Taking those factors into account, CBO projects that, on net, the Raise the Wage Act of 2021 would reduce employment by increasing amounts over the 2021-2025 period. In 2025, when the minimum wage reached $15 per hour, employment would be reduced by 1.4 million workers (or 0.9 percent), according to CBO’s average estimate. In 2021, most workers who would not have a job because of the higher minimum wage would still be looking for work and hence be categorized as unemployed; by 2025, however, half of the 1.4 million people who would be jobless because of the bill would have dropped out of the labor force, CBO estimates. Young, less educated people would account for a disproportionate share of those reductions in employment...."

Second and third I’ve include two recent CBO analysis, one is their reoccurring analyst of the impact of the minimum wage from summer 2019. CBO found, "...In an average week in 2025, the $15 option would boost the wages of 17 million workers who would otherwise earn less than $15 per hour. Another 10 million workers otherwise earning slightly more than $15 per hour might see their wages rise as well. But 1.3 million other workers would become jobless, according to CBO’s median estimate. There is a two thirds chance that the change in employment would be between about zero and a decrease of 3.7 million workers. The number of people with annual income below the poverty threshold in 2025 would fall by 1.3 million....."You commented"... What stuck me is Dems want high min wages because it will hurt employment in red states. Unemployment increases support for Dems..."

Ed, we have a bunch of stuff on the minimum wage, I curated a few of the more recent one (all attached). First Neumark’s recent paper summarizing all the research might be most useful his core takeaway from the existing studies, "... First, there is a clear preponderance of negative estimates in the literature. In our data, 79.3% of the estimated employment elasticities are negative, 55.4% are negative and significant at the 10% level or better, and 47.9% are negative and significant at the 5% level or better…. In its totality, this body of evidence and its conclusions point strongly toward negative effects of minimum wages on employment of less-skilled workers, especially for the types of studies that would be expected to reveal these negative employment effects most clearly..."

“….Plz look up all our prior blog entries on the min wage ( I think there are 3) and send the links to me. I think I commented on the 3:1….”

Steve Comment, “So they don’t carve out a specific estimate of non-workers who would otherwise be working but for the higher wage specifically. “…Under the first option ($15 an hour), according to CBO’s median estimate, about 1.3 million workerswho would otherwise be employed would be joblessin an average week in 2025. That decrease would account for 0.8 percent of all workers and 7 percent of directly affected workers who would otherwise earn less than $15 per hour…The $15 option would alter employment more for some groups than for others. Almost 50 percent of the newly jobless workers in a given week—600,000 of 1.3 million—would be teenagers (some of whom would live in families with income well above the poverty threshold). Employment would also fall disproportionately among part-time workers and adults without a high school diploma….”In the appendix they define affected workers, this definition doesn’t seem to capture those who don’t gain entry into the labor force in the first place, though perhaps the “newly jobless workers” # above given teenagers are new labor market entries might be a proxy?“…For each option, CBO estimated the number of workers whocould be affected. Directly affected workers are those whose hourly wage, in the absence of the change in the minimum wage, would range from just below the old minimum to the new, higher minimum and who therefore would either receive a higher wage or become jobless if the new federal minimum were adopted. Potentially affected workers are those whose wages would otherwise be slightly above the new federal minimum in 2025; their wages would also be affected by a higher minimum.CBO projects that such workers’ employment would not be affected by their newly higher wages, though it might be affected by changes in overall demand induced by the options….”

CBO Staff, "The Effects on Employment and Family Income of Increasing the Federal Minimum Wage," Congressional Budget Office, July 2019, https://www.cbo.gov/system/files/2019-07/CBO-55410-MinimumWage2019.pdf

They provide a box on the interplay btw the EITC/Minimum wage but you are correctthey don’t quantify it(2019) nor do they update their 2007 analysis.

Here is the CBO from 2019on $10 impact“…It would raise wages for 1.5 million workers who would otherwise earn less than $10 per hour. Another 2 million workers who would otherwise earn slightly more than $10 per hour might see their wages rise as well. The option would have little effect on employment in an average week in 2025. There is a two-thirds chance that the change in employment would be between about zero and a decrease of 0.1 million workers. This option would have negligible effects on the number of people in poverty…”

Here is how we used thesecond CBO reportinUpside

I went back and looked at CBO’s2014 analysis(that we cited inUpside,attached) that looked at the impact of a $10.10 minimum wage. In a footnote they reference a 2007 CBO report (also cited inUpside) that looked at the EITC versus minimum wage and found the cost to employers of minimum wage was more than the cost of the EITC to the feds (this was in response to $7 minimum wage)“CBO compared the cost to employers of a change in the minimum wage that increased the income of poor families by a given amount to the cost to the federal government of a change in the EITC that increased the income of poor families by roughly the same amount. The cost to employers of the change in the minimum wage was much larger than the cost to the federal government of the change in the EITC. See Congressional Budget Office, Response to a Request by Senator Grassley About the Effects of Increasing the Federal Minimum Wage Versus Expanding the Earned Income Tax Credit…”

“….So the BS in min wage, is that because many welfare recipients are just under the carefully manipulated threshold, if you raise their wage, they cross the threshold and can no longer considered "in poverty". So 1.4mm are out of a job, for much less of a true reduction in poverty, than the CBO claims (because they weren't really below the threshold if you had counted all their benefits. I'm sure someone is going to ask my about (why I don't support an increase in) the min wage, and I need to be able to explain my/this answer. I recall in a prior CBO min wage report (on $10 an hour min wage) the CBO said something like with the job losses it cost the economy $3 to give someone a $1 wage hike whereas giving them the EITC costs closer to $1. (It might have related to obamacare.) Plz find that old report and see what they say in their latest report in comparison. My quick read of the latest report was that it was left unmentioned….”

So your guess is correct SNAP and health care are excluded. They don’t have an itemized list of programs they are summing to line up against the CRS road map we used to calculated the 1.3T #. I will need to spend some time on that aspect given the apple/orange nature.