Recent minimum wage increases and the minimum wage labor force

Coclusion  Recently Whaples (1996) reported that most labor economists believe that minimum wage laws decrease employment. Despite this, policy makers have continued to periodically raise the minimum, with the most recent increases occurring in October 1996 and September 1997. The various analyses done by Card, Katz, and Krueger, that showed little to no employment effect of past minimum wage increases, have provided additional ammunition for those who would seek further increases. However, using the estimates of Williams and Mills (1998), we demonstrate that the latest minimum wage increases substantially decreased employment for both sexes. We believe that future increases will do likewise.     

Unions and wage inequality

Summary and Conclusions The impact of unions on the structure of wages has recently attracted renewed interest as analysts have struggled to explain the rise in earnings inequality in several industrialized countries. Canada, the United Kingdom, and the United States provide a potentially valuable set of countries for examining this question. All three countries now collect comparable data on wages and union status in their regular labor force surveys. Several features of the collective bargaining institutions of these countries make them suitable for studying the relationship between unions and wage inequality. Bargaining is highly decentralized; there are no general mechanisms for extending collective bargaining provisions beyond the “organized” sector; and the fraction of the work force covered by collective bargaining is relatively modest. Thus it is possible to compare the structure of wages for workers covered by union contracts to those who are not covered, and potentially infer the effect of unions on overall wage inequality.     

Union-nonunion wage differentials revisited

A reverse regression method of estimating the union-nonunion wage differential is developed using a multiple indicator model. The method provides a test for the multiple indicator model’s validity and suggests that conventional estimation techniques should underestimate the union-nonunion differential. Empirical estimates show that the reverse regression estimates are larger than conventional estimates and that the multiple indicator model cannot be rejected. The author wishes to thank Robert J. Flanagan and H. G. Lewis for their valuable comments on earlier versions of this paper.     

Government wage differentials revisited

This paper updates studies done in the mid-1970s concerning the measurement of government wage differentials in the United States. Based on an analysis of two large micro data sets, we reached the following conclusions. First, as a group, government employees earned a small wage premium of approximately 2 to 3 percent during the 1970s and early 1980s. Second, the government wage premium was substantially higher for federal employees and for women employees. These findings are consistent with earlier studies. We thank Eanswythe Leicester and Ken Emery for their research assistance and Diane Kurtz for her clerical assistance.     

Segmentation and wage determination

Dans leurs écrits récents sur la segmentation socio-économique, les Américains ont utilise des données secondaires recueillies dans le secteur industriel, pour démontrer que les arguments qui veulent que les salaires soient fixés par la population active ou fonctionelle, étaient limités. A l'aide de données recueillies principalement dans des maisons de commerce canadiennes, cette étude explore les effets d'une notion alternative du fonctionnement de la segmentation, sur le processus d'établissement des salaires. En employant de nouvelles techniques de classification, on a identifié trois groupes économiques de base, et examiné les différents aspects de la fixation des salaires à l'intérieur de ces groupes économiques. On a particulièrement montré que la perspective de segmentation pouvait fournir une réinterprétation intéressante des profile réguliers de l'expérimentation des salaires.
Recent American literature on socioeconomic segmentation has employed secondary data gathered at the industrial level to demonstrate the limitations of functionalist or human capital explanations of earnings determination. In this paper, we utilize primary Canadian data collected from business establishments to explore the effects of an alternative operationalization of the segmentation notion on the wage determination process. Using some new classificatory techniques, we identify three basic economic clusters, or segments, and examine the distinctive aspects of wage determination within these economic groups. In particular, we show that the segmentation perspective can provide an interesting reinterpretation of standard experience-earning profiles.     

Nepotism and the minimum wage

That an increase in the minimum wage or minimum wage coverage results in an increase in the incidence of nepotism is empirically tested using 1972 data on job-seeking methods used by American workers. The elasticity of the incidence of nepotism with respect to the level of the minimum wage and minimum wage coverage in 1977 is estimated at between .38 and .68. I would like to thank Peter Montiel and Geoffrey Woglom for their helpful comments and suggestions and Bruce Chesebrough for providing the stimulus to write this paper; remaining errors are my own.     

Union dues and wage premiums

This study explores whether union wage premiums reflect compensating differences or noncompetitive rents. It is argued that if (1) there exists substantial dues variability, and (2) there is a positive wage-dues relation among union workers, at least part of the observed union premium is noncompetitive. Empirically, these two conditions are substantiated both within and across industries using the PSID microdata base. On average, 44 percent of the overall union premium is attributable to noncompetitive sources. Senior Economist, Office of Research and Evaluation, Bureau of Labor Statistics and Special Assistant for Policy, Evaluation and Research, U.S. Department of Labor. Comments are gratefully acknowledged from James Cunningham, H. Gregg Lewis, Wesley Mellow, William J. Moore, Jack E. Triplett and an anonymous referee. Points of view or opinions stated in this document do not necessarily reflect the official position or policy of the U.S. Department of Labor.     

On institutions and wage determination

This paper examines the difficulties encountered in incorporating necessary institutional features of the labor market in wage change analysis. A simple ‘institutional’ model is advanced to clarify the method and implications of the incorporation of the relevant institutional detail. Certain lacunae of the research literature are identified and the need for relations supplemental to those already identified in that literature emphasized. Further process in applied work necessitates,inter al., recognition of the endogeneity of contract length and mode.     

Unions and private wage supplements

Private wage supplements are an important part of total compensation. A model of workers’ supplement expenditures is developed which shows that, although the expenditure determinants sometimes differ between broad industry/occupation subsamples, earnings, price effects of preferential tax treatment and economies of group purchase, unionization, the product market power of the firm, and worker age are usually significant determinants of supplement expenditures. The firm’s goal of reducing turnover costs as well as demographic, locational, and industry variables also systematically affect supplement expenditures. Supplements usually increase progressively with wages, indicating that often made proportionality assumptions are invalid. This work is based on a portion of my doctoral dissertation “An Economic Analysis of the Determinants of Private Wage Supplements.” An anonymous referee made many useful suggestions and criticisms. The Center for the Study of American Business at Washington University provided some of the computer funding. The remaining errors are my responsibility.     

Minimum wage effects by gender

Recent criticisms have led some to dismiss time-series analyses in the debate over the minimum wage. We investigate previous time-series studies showing that raising the minimum wage has a smaller impact on females than males. We reanalyze the data in light of recent developments in time-series methods and find that the minimum wage has a similar significant negative impact on both males and females. We conclude that, following a 10 percent increase in the minimum wage, both male and female employment drops from between 2 and 4 percent over a two-year period. This employment decrease slowly erodes as economic growth and inflation cause the minimum wage to fall below the market-clearing wage. We thank David Card and Alan Krueger for generously providing the data.     

Membership and wage impact of right-to-work laws

This paper examines the effects of “Right-to-Work” laws on union membership and on the earnings of union and nonunion members. Using regression analysis, we find that once the simultaneous equations bias between the degree of unionization and RTW laws is eliminated, RTW laws have no statistically significant influence on union membership. Similarly, using a human-capital earnings model, we find that RTW laws have no significant influence on the wages of all workers, union workers, or nonunion workers. However, we did find evidence that such laws may promote aggressive union wage policies resulting in a larger union/nonunion relative wages advantage in RTW states than in non-RTW states.     

The minimum wage and productivity differentials

A firm’s ability to adjust its production process to economize on low-skilled labor when faced with a minimum wage increase will differ greatly depending on industry or occupation. For example, more capital-intensive means of cleaning hotel rooms or serving customers at restaurants may not be readily available without degrading service quality. In such situations, the productivity of labor is essentially capped, and firms have few options when the minimum wage increases. This simple observation has implications for studies that rely on microdata to examine the effects of minimum wage increases. If firms only increase prices in response to a minimum wage increase, employment effects are likely small. If the goal of the minimum wage is to redistribute income from firms and consumers to workers, minimum-wage increases targeted at industries and occupations where such rigidities result in an inelastic demand for labor may achieve the desired goal at a lower cost than across-the-board increases. However, such a scheme causes an inefficient allocation of labor and would be subjected to substantial political pressures that may lead to anomalous results. Additionally, it is unreasonable to conclude that policy makers have the necessary information to skillfully set the minimum wage. I thank Brian E. Chezum and Jeff Waddoups for helpful comments. All mistakes, of course, are my own.     

Labor market contracting and wage dispersion

This paper uses a variety of data sources to document the effect of long-term contracts (LTCs) on wage dispersion. The paper first shows that LTCs are responsible for the decrease in wage dispersion observed as labor markets tighten; absent LTCs (as in most other advanced nations outside North America), this effect does not exist. The paper next examines the relationship between cost-of-living escalators (COLAs) and wage dispersion. COLAs are typically found only in those countries that rely on LTCs, although the incidence of COLAs in these nations is affected by inflation variability. Thus, in the United States, COLAs became much more prevalent in long-term contracts during the 1970s, which caused an increase in wage dispersion, particularly between the union and nonunion sectors. The paper concludes that, despite some suggestions that we ban LTCs and COLAs because of their perverse effects on wage dispersion and other economic outcomes, such a ban would be unwise in light of historically high levels of industrial strife in those nations that rely on these contractual devices.     

Unionization and nonunion wage patterns:

conclusion We argue that a nonunion worker’s support for unionization depends not only on the expected gain in wages, but also on the probability of retaining employment after union-ization. Incorporating this point generates no prediction that low-wage workers will receive the largest threat-induced supplements as they are the ones who are least likely to retain their jobs after unionization. In short, which group of workers will receive the largest union induced wage supplement is ambiguous.     

The minimum wage and tipped employees

Using data from theCensus of Retail Trade, I estimate that allowing restaurants to use servers’ tipped income to satisfy minimum wage requirements would create at least 360,000 new high-paying jobs and increase total income for tipped workers by at least 8 percent. Conversely, if the minimum wage were increased 10 percent, tipped workers would experience a 4 percent decrease in employment and a 6 percent reduction in hours worked, and all servers (tipped and non-tipped) would experience a 3 to 5 percent decrease in total income because the tipped jobs lost paid more than the minimum wage. By not allowing employers to use all of a worker’s tipped income to meet the minimum wage, state and federal minimum wage laws inhibit the creation of hundreds of thousands of new jobs paying well above the minimum wage. Total elimination of this credit would decrease employment at least 10 percent.     

Political support for minimum wage legislation

Conclusion Even if minimum wage laws reduce employment opportunities for some workers, other individuals may benefit from their enactment. In particular, union members and residents of states with high wage levels would be expected to encourage their senators to vote in favor of minimum wage legislation. Examination of senators’ votes on the 1966 and 1974 minimum wage bills indicates that senators favoring passage of these bills are likely to come from states with high union membership and, to a lesser extent, high wage levels. The equations explaining senators’ votes on these bills were disaggregated by political party affiliation and length of membership in the Senate. Democrats were more likely than Republicans to support minimum wage bills. Virtually no difference was observed between senators who voted on both the 1966 and 1974 measures and those who voted on only one. Perhaps the most encouraging result reported is the similarity of coefficients generally observed for corresponding 1966 and 1974 equations. This similarity suggests that the equations reported herein could be used to predict votes on future minimum wage bills. The results suggest also that the general mode of analysis can be fruitfully applied to other economic legislation.     

An equilibrium analysis of the gender wage gap

Within a two‐sector general equilibrium model, women's productivity in the marketplace decreases with the amount of household work they perform at home. Assuming that men's and women's household labour inputs are complementary here we prove the existence of multiple equilibria. In some, men and women allocate their labour equally and earn identical wages. In others, they allocate labour differently and earn different wages. In this context, beliefs about the inferiority of women's productivity are shown to be self‐fulfilling. By use of numerical examples, we show that welfare is highest when spouses allocate labour equally and suggest policy recommendations.     

Costing out a wage and benefit package

Labor costs represent the largest single cost of operation for most organizations. For the unionized employer, the compensation package is determined during contract negotiations. It is important for both union and management negotiators to be able to identify the cost of a proposed agreement. Both parties to a contract should know whether a proposed compensation package is consistent with an organization's ability to pay. In addition, when "trading" demands, both parties should be aware of the cost of the demands being traded. An approach to costing out a labor agreement has been presented in this article. While it can be described as the standard approach, it is subject to several criticisms. Typically, it is applied in a way that assumes that history will repeat itself. In addition, it focuses on the direct cost of a proposed compensation package. While this is certainly relevant, the impact of the compensation package on organization profits is more important. Finally, the time value of money is not taken into account. This would be important if a multi-year contract is being negotiated. While there are legitimate concerns about the approach presented here, our objective is to provide the reader with a basic approach to costing out a wage and benefit package. Anyone involved in contract negotiations or, in the nonunion firm, anyone responsible for administering a wage and benefit program, should be aware of the problems that we have described and seek out reference materials to provide guidance in addressing them.     

Vertical wage differences in hierarchically structured firms

In this paper, we present a cooperative model of a hierarchically structured firm to study wage differences between different levels in such a firm. We consider a class of wage functions that are based on marginal contributions to production. It turns out that the wage of a manager is always at least as high as the wage of its subordinates. On the other hand, the wage of a manager never exceeds the sum of the wages of its direct subordinates. These bounds are sharp in the sense that we can characterize for which production processes they are reached. For the class of constant elasticity of substitution (CES) production functions this implies that the wage differences are maximal for linear production functions, and they are minimal for Cobb–Douglas production functions.