Collect estimates of effects of employment on wages from the literature

[santiagohermo]

An important issue in the review will be to improve our understanding of the effect of the MW on wage income, with potentially additional analysis (will see what the editor says).

In this issue we will look up in the literature estimates of the effect of the MW on employment. We will organize those estimates in a csv file in raw/mw_effect_estimates/.

Some relevant literature to get us started

• Aaronson, Agarwal, and French (2012). The Spending and Debt Response to Minimum Wage Hikes.
• Burkhauser et al. (2023). Minimum Wages and Poverty: New Evidence from Dynamic Difference-in-Differences Estimates
• Cengiz et al. (2022). Seeing beyond the Trees: Using Machine Learning to Estimate the Impact of Minimum Wages on Labor Market Outcomes.
• Cooper et al. (2019). The Local Aggregate Effects of Minimum Wage Increases
• Dube 2019. Minimum wages and the distribution of family incomes.
• Wiltshire et al. 2023. High Minimum Wages and the Monopsony Puzzle.

See also cites in the submitted cover letter.

Extract from cover letter to AEJ: Policy

Point 2 in replies to referees.

We also received comments regarding our estimates of the effect of the MW on income. These estimates, discussed in Appendix D and displayed in Online Appendix Table 7, show that a 10% increase in the workplace MW leads to a roughly 1% increase in wage income in a ZIP code. This estimate is an input of the counterfactual analyses in Section 6. Thus, we will expand Section 6 by adding a figure that shows how the conclusions of the counterfactuals change with different values of the elasticity of income to the minimum wage that can be justified based on different assumptions and estimates in the literature.

• Magnitude of elasticity of aggregate wage income to the MW: R1 suggested that our estimates are too large relative to Cengiz et al. (2019). Our illustrative comparison in Appendix D assumes a share of MW workers of 15% and finds that our estimates are of similar magnitude to Cengiz et al. (2019).4 R1 thinks we should use the share of MW workers in the wage bill, “around 6%” (p. 2). However, if there are spillovers above the MW (as suggested by Cengiz et al. 2019), the share of the wage bill affected by a MW increase will be larger.5 We will revise this comparison and discuss this point. We will expand our literature review to get a better sense of the available estimates of the effect of the MW on wage income. We will base our sensitivity analysis for the counterfactual exercises on the range of estimates collected from the literature.
• Estimates in Appendix D: Both R1 and R2 had comments on our analysis. R1 suggests to implement an event-study analysis to increase the credibility of these results. R2 argues that we should show “the effect of an increase in the minimum wage on wages relative to contiguous jurisdictions” (page 3). By including CBSA by time fixed effects, we show increases in wages relative to jurisidictions in the same metropolitan area. We are willing to pursue additional analyses if you think that estimating the wage income elasticity in a different way would be valuable.

[santiagohermo]

Take a look at Point 2 in replies to referees in the cover letter

[santiagohermo]

Hey @gabrieleborg! In https://github.com/diegogentilepassaro/min_wage_rent/commit/c6f96da5635922b114a11379935911548bf5ee57 I created branch issue264_lit_income_effects and added the Cengiz et al 2019 paper in a new csv in raw/mw_on_income_literature.

I think that, for each paper, we want to collect estimates so that we can compute the aggregate increase in the wage bill due to the MW. Ideally this would include the share of MW workers paid at or below the MW, and the share of the wage bill that is paid to MW workers.

Let me know if I can help!

[gabrieleborg]

Hi Santi - that looks good! I had a busy weekend dealing with moving logistics. I will start tackling this tonight after work. I will let you know after reviewing the scope of it!

[santiagohermo]

Sounds good, thanks @gabrieleborg!

[gabrieleborg]

Hey @santiagohermo - I started reviewing a couple of papers while trying to get some info from them. What I noticed so far is that some of these papers don't report elasticities, so I have added a few columns to the csv in case we want to use dollar values in trying to obtain the estimates we need.

I will continue tomorrow night, but if you review some other paper before that post it here and let me know! I am finishing reading the Aarsonson paper.

[santiagohermo]

That sounds great @gabrieleborg! We would like to report a range of elasticities of income to the MW in the end, regardless of how we compute it. If you think that with the information provided in the paper is not possible to get to an elasticity, then we don't need to add that paper to the review.

[gabrieleborg]

Hey @santiagohermo , I had really little time this week but I will continue the task this weekend.

[santiagohermo]

Thanks for the update @gabrieleborg!

[gabrieleborg]

@santiagohermo I have finished a first round of readings to collect estimates. Do you want me to commit and push the updated CSV file?

[santiagohermo]

Thanks @gabrieleborg! Please go ahead and share those estimates, curious to see what you found 😄

[gabrieleborg]

Hey @santiagohermo @diegogentilepassaro , here's a brief recap of what I have found:

https://github.com/diegogentilepassaro/min_wage_rent/blob/d4b2520b6532270462100e5f1b98c1444885c9c9/raw/mw_on_income_literature/estimates.csv

1. I didn't find many results that could be used off-the-shelf, as each paper reports MW impact in slightly different ways.
2. I was able to retrieve 4 income elasticities. These vary from 1.6 to 16.7 percent - but mainly because they refer to different population. For example, the 16.7 percent one has been estimated for fast food workers only. The 1.6 percent one on the other hand is obtained by first performing an ML prediction task to identify in a probabilistic manner the MW Population.
3. I then generated 2 new columns, and renamed the existing "event_on_income" and "event_on_mw" to "eventon*_pct". The reason is that while some papers reports elasticities, the Aaronson et al (2021) reports dollar figures. For these, we now have the "event_on_income_dollar" and "event_on_mw_dollar" one.
4. I didn't really have much luck when collecting shares of MW workers, or MW workers' wage bill: I found only 1 more for the former (besides the Cenzig et. al., 2019 one), and none for the latter.

Overall, I think we can still try to come up with some literature comparison, but it looks to me we either:

1. keep researching the literature;
2. combine estimates from different papers into one "literature-based" effect of MW on employment. I will definitely have more time in the next weeks, so curious to hear your thoughts on how to proceed!

[santiagohermo]

Paper by Diego V and Maor M: https://drive.google.com/file/d/1biXDhCuy3OPc5bozuyVEjKFKM0wLr7ej/view

[gabrieleborg]

@santiagohermo @diegogentilepassaro I finished reviewing the additional literature plus some research online. I added few other estimates and briefly updated the description when needed. Need to discuss whether to PR or not.

[santiagohermo]

Allegreto et al 2018: "we focus here on the food services industry.... A 10 percent increase in the minimum wage increases earnings between 1.3 and 2.5 percent, depending on the model estimated." Hughes 2020: "The results suggest a 10% increase in minimum wages increases income for affected households by 1.9%, increases housing consumption by 0.5%, and decreases rent-to-income ratios by 1.4%. These estimates suggest that housing demand is fairly income inelastic, and preferences over housing demand are non-homothetic." Leung 2021: "In the labor market, I find that a 10% minimum wage hike raises earnings of grocery store workers up to 1.5%"

[gabrieleborg]

@santiagohermo I see you added some additional reference in the comment. what do you want to do with this issue?

[santiagohermo]

Thanks @gabrieleborg! I think that, once we are done with #271 and added the cites that we want, we can delete this branch. Or do you prefer to keep the csv file?

[gabrieleborg]

Yeah that sounds good to me @santiagohermo. I just added my comments on #271 , so feel free to delete this.

[santiagohermo]

Summary:

In this issue we explored estimates of the effect of the minimum wage on income. See this csv for some results, and this comment for additional references.

We decided to not include a comprehensive review of this parameter in the paper. Rather, we selected a few references and added to the paper in #268. We decided to delete the branch as well.

State of issue branch before deletion here.