Worth the Work

Kevin Lewis

October 20, 2021

The Heterogeneous Effects of Large and Small Minimum Wage Changes: Evidence over the Short and Medium Run Using a Pre-Analysis Plan
Jeffrey Clemens & Michael Strain
NBER Working Paper, September 2021

This paper advances the use of pre-analysis plans in non-experimental research settings. In a study of recent minimum wage changes, we demonstrate how analyses of medium- and long-run impacts of policy interventions can be pre-specified as extensions to short-run analyses. Further, our pre-analysis plan includes comparisons of the effects of large vs. small minimum wage increases, which is a theoretically motivated dimension of heterogeneity. We discuss how these use cases harness the strengths of pre-analysis plans while mitigating their weaknesses. This project's initial analyses explored CPS and ACS data from 2011 through 2015. Alongside these analyses, we pre-committed to analyses incorporating CPS and ACS data extending through 2019. Averaging across the specifications in our pre-analysis plan, we estimate that relatively large minimum wage increases reduced employment rates among low-skilled individuals by just over 2.5 percentage points. Our estimates of the effects of relatively small minimum wage increases vary across data sets and specifications but are, on average, both economically and statistically indistinguishable from zero. We estimate that medium-run effects exceed short-run effects and that the elasticity of employment with respect to the minimum wage is substantially more negative for large minimum wage increases than for small increases.

The Employment and Redistributive Effects of Reducing or Eliminating Minimum Wage Tip Credits
David Neumark & Maysen Yen
NBER Working Paper, September 2021

Recent policy debate on minimum wages has focused not only on raising the minimum wage, but on eliminating the tip credit for restaurant workers. We use data on past variation in tip credits - or minimum wages for restaurant workers - to provide evidence on the potential impacts of eliminating (or reducing) the tip credit. Our evidence points to higher tipped minimum wages (smaller tip credits) reducing jobs among tipped restaurant workers, without earnings effects on those who remain employed sufficiently large to raise total earnings in this sector. And most of our evidence provides no indication that higher tipped minimum wages would be well targeted to poor or low-income families or reduce the likelihood of being poor or very low income.

The Impact of Increase in Minimum Wages on Consumer Perceptions of Service: A Transformer Model of Online Restaurant Reviews
Dinesh Puranam, Vrinda Kadiyali & Vishal Narayan
Marketing Science, September-October 2021, Pages 985-1004

We study the impact of a mandated increase in minimum wages on consumer perceptions of multiple dimensions of service quality in the restaurant industry. When faced with higher minimum wages, firms might reduce the number of employees, resulting in poorer consumer service. Alternatively, higher-paid workers might be more motivated to improve consumer service. Using a combination of human annotation and several transformer models, we estimate the incidence of discussion of several service quality attributes (and their valence) in a textual data set of 97,242 online reviews of 1,752 restaurants posted over two years. We exploit a natural experiment in the County of Santa Clara, California, wherein only the city of San Jose legislated a 25% minimum wage increase in 2013. By comparing restaurant reviews in San Jose with those of synthetic controls, we find an improvement in the perceived service quality of San Jose restaurants. Specifically, we find reduced negative discussion of the courtesy and friendliness of workers. This decrease is present in independent restaurants and not in chains. This finding appears to be consistent with agency theory-based predictions of greater incentives to improve service in independent restaurants. We discuss alternative mechanisms for our results. We also discuss implications for consumers, restaurants, and policy makers.

Minimum Wage and Firm Variety
Priyaranjan Jha & Antonio Rodriguez-Lopez
University of California Working Paper, September 2021

Exploiting minimum-wage variation within multi-state commuting zones, we document a negative relationship between minimum wages and firm variety in the U.S. restaurant and retail trade industries. To explain this finding, we construct a heterogeneous-firm model with a monopsonistic labor market and endogenous firm variety. The decentralized equilibrium underprovides the mass of firms compared to the outcome achieved by a welfare-maximizing planner. A binding minimum wage further reduces the mass of firms, exacerbating the distortion. Workers value employer variety, and thus, by reducing firm variety the minimum wage reduces workers' welfare even if the average wage increases.

Local Shocks and Internal Migration: The Disparate Effects of Robots and Chinese Imports in the US
Marius Faber, Andrés Sarto & Marco Tabellini
Harvard Working Paper, July 2021

Migration has long been considered one of the key mechanisms through which labor markets adjust to economic shocks. In this paper, we analyze the migration response of American workers to two of the most important shocks that hit US manufacturing since the late 1990s - Chinese import competition and the introduction of industrial robots. Exploiting plausibly exogenous variation in exposure across US local labor markets over time, we show that robots caused a sizable reduction in population size, while Chinese imports did not. We rationalize these results in two steps. First, we provide evidence that negative employment spillovers outside manufacturing, caused by robots but not by Chinese imports, are an important mechanism for the different migration responses triggered by the two shocks. Next, we present a model where workers are geographically mobile and compete with either machines or foreign labor in the completion of tasks. The model highlights that two key dimensions along which the shocks differ -- the cost savings they provide and the degree of complementarity between directly and indirectly exposed industries -- can explain their disparate employment effects outside manufacturing and, in turn, the differential migration response.

Comparative advantage and moonlighting
Stéphane Auray, David Fuller & Guillaume Vandenbroucke
European Economic Review, October 2021

We document three facts: (i) Higher educated workers are more likely to moonlight; (ii) conditional on education, workers with higher wages are less likely to moonlight; and (iii) the prevalence of moonlighting is declining over time for all education groups. We develop an equilibrium model of the labor market to explain these patterns. A dominating income effect explains the negative correlation of moonlighting with productivity in the cross section and the downward trend over time. A higher part-to-full time pay differential for skilled workers (a comparative advantage) explains the positive correlation with education. We provide empirical evidence of the comparative advantage using CPS data. We calibrate the model to 1994 cross-sectional data and assess its ability to reproduce the 2017 data. The driving forces are productivity variables and the proportion of skilled workers. The model accounts for 56% of the moonlighting trend for skilled workers, and 67% for unskilled workers.

Improving health and economic security by reducing work schedule uncertainty
Kristen Harknett, Daniel Schneider & Véronique Irwin
Proceedings of the National Academy of Sciences, 19 October 2021

Work schedules in the service sector are routinely unstable and unpredictable, and this unpredictability may have harmful effects on health and economic insecurity. However, because schedule unpredictability often coincides with low wages and other dimensions of poor job quality, the causal effects of unpredictable work schedules are uncertain. Seattle's Secure Scheduling ordinance, enacted in 2017, mandated greater schedule predictability, providing an opportunity to examine the causal relationship between work scheduling and worker health and economic security. We draw on pre- and postintervention survey data from workers in Seattle and comparison cities to estimate the impacts of this law using a difference-in-differences approach. We find that the law had positive impacts on workers' schedule predictability and stability and led to increases in workers' subjective well-being, sleep quality, and economic security. Using the Seattle law as an instrumental variable, we also estimate causal effects of schedule predictability on well-being outcomes. We show that uncertainty about work time has a substantial effect on workers' well-being, particularly their sleep quality and economic security.

Simulating Endogenous Global Automation
Seth Benzell et al.
NBER Working Paper, September 2021

This paper develops a 17-region, 3-skill group, overlapping generations, computable general equilibrium model to evaluate the global consequences of automation. Automation, modeled as capital- and high-skill biased technological change, is endogenous with regions adopting new technologies when profitable. Our approach captures and quantifies key macro implications of a range of foundational models of automation. In our baseline scenario, automation has a moderate effect on regional outputs and a small effect on world interest rates. However, it has a major impact on inequality, both wage inequality within regions and per capita GDP inequality across regions. We examine two policy responses to technological change -- mandating use of the advanced technology and providing universal basic income to share gains from automation. The former policy can raise a region's output, but at a welfare cost. The latter policy can transform automation into a win-win for all generations in a region.

Boon or Burden? Evaluating the Competing Effects of House-Price Shocks on Regional Entrepreneurship
Nicholas Kacher & Luke Petach
Economic Development Quarterly, forthcoming

This paper examines the impact of changes in housing affordability on regional entrepreneurship. Two-way fixed-effects estimates suggest an increase in the level of house prices in a commuting zone results in a decline in establishment openings as a share of existing establishments - consistent with a crowding-out effect. In contrast, an increase in the growth rate of house prices results in a small (although not always statistically significant) increase in establishment openings - consistent with a positive wealth effect from capital gains. To address endogeneity concerns, the authors adopt two alternative instruments for commuting zone house-price growth: a measure of local real estate lending and a geography-based measure of the elasticity of local housing supply. They extend the analysis using restricted-use establishment-level microdata from the Quarterly Census of Employment and Wages (QCEW) for the state of Colorado. Results from the QCEW data are consistent with those from the commuting zone sample.

Technological Change and Obsolete Skills: Evidence from Men's Professional Tennis
Ian Fillmore & Jonathan Hall
Labour Economics, forthcoming

Technological innovation can raise the returns to some skills while making others less valuable or even obsolete. We study the effects of such skill-altering technological change in the context of men's professional tennis, which was unexpectedly transformed by the invention of composite racquets during the late 1970s. We explore the consequences of this innovation on player productivity, entry, and exit. We find that young players benefited at the expense of older players and that the disruptive effects of the new racquets persisted over two to four generations.


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