Minimum wages and the wessels effect in a monopsony model

The Wessels model suggests that firms respond to increases in the minimum wage rate by decreasing the level of fringe benefits — an action which produces an inefficiency effect that lowers workers’ utility and the supply of labor. Standard models of monopsony, however, argue that wage floors prevent the exercise of market power and increase employment. I show that wage floors, even with fringe benefit curtailment, may increase employment by lowering the marginal expense of labor. Employee utility and employment will rise somewhat but not as much had the firm acted competitively in setting both wages and fringes.     

MINIMUM WAGES,IMPORT STATUS,AND FIRMS' INNOVATION: THEORY AND EVIDENCE FROM CHINA

This study explores the heterogeneous effects of minimum wage on innovation of different types of firms. We develop an open‐economy R&D‐based growth model and obtain the following result: raising the minimum wage reduces innovation of firms that use domestic inputs but increases innovation of firms that import foreign inputs. We test this result using city‐level data on minimum wages and firm‐level patent data in China. In accordance with our theory, we find that raising the minimum wage is associated with more innovation by importing firms and less by non‐importing firms. This result survives a battery of robustness checks. (JEL E24, F43, O31)     

LOBBYING FOR MINIMUM WAGES

Using a common agency lobbying framework, this paper illustrates how the minimum wage set reflects the interaction between economic and political factors and under what circumstances will the policymaker be induced, through lobbying, to change the minimum wage. Specifically, when the labor demand elasticity is large, lobbying is successful in inducing the policymaker to set the minimum wage in accordance with her political ideology. However, the paper also shows the conditions under which lobbying will reverse the ideological preference and induce a business‐friendly government to increase the minimum wage. Empirical analysis on a panel data for ten Canadian provinces gives considerable support for theoretical predictions. The real minimum wage decreases in skill‐adjusted union density and political ideology, while larger labor demand elasticity reinforces the influence of political ideology in the presence of lobbying. (JEL J38, D72, D78)     

Does the minimum wage drive teenagers out of the labor force?

Labor force participation is directly related to the value of being in the labor force. The effect of the minimum wage on labor force participation thus measures how the minimum wage affects the welfare of labor force participants. In contrast, a decline in employment tells us little about welfare, because of the offsetting wage increase. Only changes in labor force participation can directly measure the welfare effects of the minimum wage. Despite this, most literature about the minimum wage has been focused on employment. My empirical results show that the minimum wage has a significant negative effect on teenage labor force participation. Thus, a minimum wage reduces the value of entering the labor market.     

Minimum wages and poverty with income-sharing

Textbook analysis tells us that in a competitive labor market, the introduction of a minimum wage above the competitive equilibrium wage will cause unemployment. This paper makes three contributions to the basic theory of the minimum wage. First, we analyze the effects of a higher minimum wage in terms of poverty rather than in terms of unemployment. Second, we extend the standard textbook model to allow for income-sharing between employed and unemployed persons in society. Third, we extend the basic model to deal with income sharing within families. We find that there are situations in which a higher minimum wage raises poverty, others where it reduces poverty, and yet others in which poverty is unchanged. We characterize precisely how the poverty effect depends on four parameters: the degree of poverty aversion, the elasticity of labor demand, the ratio of the minimum wage to the poverty line, and the extent of income-sharing. Thus, shifting the perspective from unemployment to poverty leads to a considerable enrichment of the theory of the minimum wage.      

SKILLED‐UNSKILLED WAGE INEQUALITY AND URBAN UNEMPLOYMENT

The impact of trade liberalization on the labor market in the North has drawn tremendous attention in the face of the growing skilled‐unskilled wage gap but in the South it has been somewhat neglected. One of the key structural differences between the North and the South is that the South experiences a pronounced rural‐urban migration in the presence of urban unemployment. We introduce this feature in the structure of a simple general equilibrium model to analyze the effects of trade liberalization and fragmentation on employment and the skilled‐unskilled wage differential in the South. In particular, we show that while fragmentation necessarily improves the unskilled wage and the skilled wage, more lucrative global opportunities for the skilled final product, in the absence of fragmentation, can reduce the rural wage and increase urban unemployment. The effect of fragmentation, ceteris paribus, on the skilled‐unskilled wage gap is sensitive to the degree of substitutability between land and unskilled labor. As such, fragmentation can magnify the increase in the skilled‐unskilled wage gap resulting from an improvement in the terms of trade. It is also shown that a technological progress in the intermediate goods sector increases the skilled‐unskilled wage gap and raises urban unemployment. (JEL F1, O1, F11, F12)     

Do minimum wage hikes reduce employment? State-level evidence from the low-wage retail sector

Several recent studies have challenged the conventional notion that raising the minimum wage reduces employment. This study considers this issue by examining the minimum wage's influence on retail employment. Standard labor market analysis suggests that low-wage industries should be particularly sensitive to minimum wage hikes. Therefore, by considering retail employment using pooled-cross sectional, state-level data, this study extends recent research that generally emphasized teen employment. The empirical analysis considers state data from the latter 1980's, a unique period where many states raised their minimum wage above the federal level. Our results suggest that an increased minimum wage reduces retail employment, which is consistent with the standard labor market model. Moreover, further analysis indicates that minimum wage hikes also had relatively large adverse effects on total state employment growth, which implies that state minimum-wage policies can affect firm and household location. We thank Dan Rickman and the anonymous referee for their help with this study.     

The minimum wage can harm workers by reducing unemployment

Economists may disagree over how much raising the minimum wage increases unemployment, though few argue that the unemployment effect is zero. According to the standard model, the less the unemployment caused by a minimum wage increase, the less the harm (or greater the good) that results. But by recognizing that minimum wage workers receive fringe benefits, I show that increasing the minimum wage may not cause any unemployment and harms workers because it doesn 't. Furthermore, when there is lumpiness in providing fringe benefits, a minimum wage increase may harm workers by     

THE COMPETITIVE RETURNS TO THE GLOBAL SEARCH FOR TALENT: PROFESSIONAL SPORTS MARKETS AND FOREIGNERS

We examine the geographical and racial diversity of a market's labor supply. While the likely impact of expanding supply is to increase the level of productivity, it is not obvious what impact the expansion would have on the overall level of competition. If the added labor increases productivity differentials or are disproportionately populated on high achieving firms, then the likely result would be greater imbalance. We find that while increases in the foreign‐born component are associated with an increase in the overall level of competition, the impact has diminished across time. (JEL C22, D23, D30)     

Can a minimum wage increase have an adverse impact on inequality? Evidence from two Latin American economies

This paper uses a semiparametric model to analyze the impact of an increase in the real minimum wage on inequality in Colombia between 1995 and 1999 and in Paraguay between 1993 and 2000–2001. Simulations suggest that if the employment effects of the minimum wage increase are ignored, the underlying policies would contribute to reduce earnings inequality in Colombia and would be inequality neutral in Paraguay. By considering the drop in wages of those who lost their jobs, simulations suggest that in both countries the policy in question would increase earnings inequality under some assumptions about the employment elasticity of the minimum wage and the new level of earnings unemployed workers rely upon. While these findings do not mean that minimum wage increases in LDCs (Less Developed Countries) necessarily have adverse distributional affects, they suggest that minimum wage policy should be implemented with care depending on how sensitive employment is to wage increases. An erratum to this article can be found at     

MINIMUM WAGE EFFECTS WITH OUTPUT STABILIZATION

What are the effects of legal minimum wage rates on the U.S. economy? Does minimum wage legislation promote the economic self-interest of high wage union labor and impede the economic self-interest of capitalists as our earlier research [Cox and Oaxaca 1982] suggested? This paper uses a nine sector econometric/simulation model of U.S. industry from 1975–1978 to answer these questions in the context of stabilization policies which hold aggregate real output constant. While most simulated percentage effects are small, those for the unskilled workers themselves are not. A 15.7 percent increase in the average nominal wage rate of unskilled labor, as a result of minimum wage legislation, produced an 11 percent decrease in unskilled employment, 2.2 million jobs lost, while increasing the real wage of unskilled workers by 15 percent. Simulated changes in several key variables support our earlier observations that the self-interests of labor unions, with skilled workers, conflict with those of capitalists over the issue of minimum wage legislation.     

DO MINIMUM WAGE INCREASES INFLUENCE WORKER HEALTH?

This study investigates whether minimum wage increases impact worker health in the United States. We consider self‐reported measures of general, mental, and physical health. We use data on lesser‐skilled workers from the 1993 to 2014 Behavioral Risk Factor Surveillance Survey. Among men, we find no evidence that minimum wage increases improve health; instead, we find that such increases lead to worse health outcomes, particularly among unemployed men. We find both worsening general health and improved mental health following minimum wage increases among women. These findings broaden our understanding of the full impacts of minimum wage increases on lesser‐skill workers. (JEL I1, I11, I18)     

PAYING MORE TO HIRE THE BEST? FOREIGN FIRMS,WAGES, AND WORKER MOBILITY

In the context of the debate on the labor‐market consequences of globalization, we adopt an original approach toward the identification of the wage differences between foreign and domestic firms: worker mobility. Using matched employer‐employee panel data for Portugal, we consider virtually all spells of interfirm mobility over a period of 10 yr. We find that foreign firms offer significantly more generous wage policies, although there is also a (smaller) selection effect. The results are robust to the consideration of displaced workers, wage growth differences in the new firms, and different subsets of workers. (JEL J31, J63, F23)     

Minimum Wages in a Segmented Labor Market: Evidence from South Africa

The segmented labor market model describes the impacts of minimum wages on covered and uncovered sectors. This paper examines the impacts of an industry-specific minimum wage in South Africa, a state characterized by high unemployment, a robust union movement, and the presence of a large informal sector. Under the industry-specific wage law, formal agricultural and household workers are covered, while workers in other sectors are not. The unique aspect of this paper lies in the ability to compare the impacts of minimum wage legislation on formal covered, informal covered, formal uncovered, and informal uncovered workers. This natural experiment allows us to test whether industry-specific minimum wage legislation leads to higher wages, whether wage increases are restricted solely to covered formal sectors or if there are spillover effects, and whether such legislation manifests in disemployment effects. We find evidence of higher wages yet disemployment among black workers in formal markets. In informal markets we find no employment effects, but higher wages in formal markets appear to have spilled over into informal markets in covered sectors.     

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.     

Does the early bird always get the worm? market institutions and the timing of employment decisions

Unravelling of appointment dates can be observed in some entry-level labor markets but not in others. A comparison of different markets shows how the costs of breaking contracts and being rematched can affect the timing of appointments and market behavior. If contracts can be terminated at any time by workers and if rematching costs are relatively small compared to the benefits from changing matches, early appointments in an entry-level labor market confers no benefit on firms. Firms then have no incentives to make early offers. However, if the costs offset the benefits from changing employment, firms that cannot compete with their principal competitors may prefer to make offers before some critical information becomes available rather than wait for the time when employment can actually start. Such a labor market may experience early appointments. But if the most desirable firms do not issue early offers, other firms may be rejected in any early period. Therefore, the most desirable firms can work together to halt unravelling. I am indebted to Esquire Donna Gerson and Koh Song Hui who extended help in writing this paper. My special thanks should be given to Alvin Roth for his suggestions and comments.     

How do Students Respond to Labor Market and Education Incentives? An Analysis of Homework Time

This study examines the extent to which high school students respond to education and labor market incentives when making decisions about homework. Student and state fixed effects estimators are used to control for unobserved individual and geographic heterogeneity and selection. I find that students’ choices about homework respond to unemployment rates and changes in the minimum wage, but not to changes in the price of higher education. These responses are not constant throughout the population: female students, low income students, and low achieving students in particular increase their homework time in response to a higher minimum wage, while male students are more responsive to changes in the unemployment rate.     

Firm Ownership and Rent Sharing

In this paper we analyse—theoretically and empirically—how the degree of private versus public ownership of firms affects the degree of rent sharing between firms and their workers. Using a particularly rich linked employer-employee dataset from Portugal, covering a large number of corporate ownership changes across a wide spectrum of economic sectors over more than 20 years, we find that rent sharing is significantly higher in firms with a larger share of private ownership. Estimates from our most preferred empirical specification suggest that an increase in the private ownership share of 10 percentage points increases (on average) the rent-sharing elasticity by 0.0002. Based on a theoretical analysis that incorporates union-firm wage bargaining and efficiency wage effects within the same modelling framework, this result cannot be explained by private firms being more profit oriented than public ones. However, the result is consistent with a scenario whereby privatisation leads to less job security for workers, implying stronger efficiency wage effects.     

Workers, Unions, and Takeovers

How do takeovers affect workers?? wages and job security in the short-run? What role does the labor union play in mitigating these effects? I answer these two questions by analyzing wage and employment outcomes of over 4,000 public firms that were acquired between 1981 and 2002, using establishment-level data from the U.S. Census Bureau. I find that target establishments exhibit a net contraction in wages and employment, relative to comparable establishments after takeovers. Targets?? establishments in more unionized industries experience worse wage and employment outcomes after takeovers. These adverse effects are exacerbated when the establishment is located in a state with Right-to-work laws where unions face a less favorable bargaining environment. These findings indicate that target firms?? employees are negatively affected by takeovers and that their labor unions do not mitigate these negative effects.     

THE COLLAPSE AND RECOVERY OF THE CAPITAL SHARE IN EAST GERMANY AFTER 1989

After the 1990 unification, East Germany's capital income share plunged to 15.2% in 1991, then increased to 37.4% by 2015. To account for these large changes in the capital share, I model an economy that gains access to a higher productivity technology embodied in new plants. As existing low productivity plants decrease production, the capital share varies due to the nonconvex production technology: plants require a minimum amount of labor to produce output. Two policies—transfers and government‐mandated wage increases—have opposite effects on output growth, but contribute to lowering the capital share early in the transition. (JEL E20, E25, O11)