Labor Market Regulation

Labor Market Regulation In the context of job danger, what is role

for regulation? In other words, what kinds of regulations are likely to be “good”? What are some that might be bad?

Labor Market Regulation and Market Failures Think about this issue with respect to

Guinea Pigging? What are the current regulations? Should

these be kept?

What new regulations might be “good” to impose?

Labor Market Regulation and Market Failures In general, laws and regulation are best

used to correct or prevent “market failures”.

What do we mean by market failures?

What market failure are the OSHA laws correcting? Top 10 Most Frequently Cited Standards

What sort of market failures do policies like maximum hours restrictions correct? What about minimum wage laws?

Minimum wage laws as Poverty Policy Federal minimum wage is currently

$7.25/hr, but many states have their own higher minimums (which take precedent).

Prior to these changes, minimum wage only changed 3 times in last 25 yrs.

What is motivation for these laws? What are potential drawbacks?

Minimum wage laws as Poverty PolicyPotential Drawbacks: Targeting

Looking at 1992 change, Half of those affected were 16-24 (60% enrolled in school), Only 20% were families living below poverty line.

Employment effects What is the theory behind employment effects of minimum

wage?

What are key aspects of this argument?

What then are key underlying assumptions?

Minimum wage laws as Poverty Policy So where is the empirical evidence?

What is Kennan’s argument?

Minimum wage laws as Poverty Policy

Minimum wage laws as Poverty Policy

Minimum wage laws as Poverty Policy Problem: Hard to isolate the effect of one thing given all the things

that are going on.

What would be nice is to be able to control for all of the other things that are changing and then see what just changing minimum wage would do to employment.

How might one try to do this?

Minimum wage laws as Poverty Policy Card and Krueger

Use a “natural experiment” empirical approach.

On April 1, 1992, NJ increased min wage to $5.05 while other states (including neighboring PA) had fed min wage of $4.25.

Card and Krueger collected employment data from fast food restaurants in NJ and Eastern PA in April and then again at same places in Nov and Dec.

What is basic “identification” intuition?

Minimum wage laws as Poverty Policy

Minimum wage laws as Poverty Policy Issues in interpreting Card and Krueger

Are Pennsylvania fast food establishments really a good “control” group for New Jersey fast food establishments?

While Diff-in-Diff estimate suggests employment went up in NJ relative to PA after rise in NJ min wage, what is a concern?

What is short-term/longer-term distinction? Why might it be important here?

Minimum wage laws as Poverty Policy Issues in interpreting Card and Krueger

If we believed their findings, what theoretical story could explain them?

What is the hungry teenager theory? Is it plausible?

Minimum wage laws as Poverty Policy Keil, Roberson, and Symmons (2009)

Take Card and Krueger’s idea to a more aggregate level.

Use state level data on youth employment/population ratio and state minimum wage rates and from 1976 – 2007.

Look to see correlation between increases in minimum wage and youth employment/population ratio.

Minimum wage laws as Poverty Policy Keil, Robertson, and Symmons (2009)

Blue line shows number of states with minimum wage above Federal minimum wage (higher one takes precedence).

Federal Minimum Wage

Number of States

01

23

45

67

Fede

ral M

inim

um W

age,

$

05

1015

2025

3035

Num

ber o

f Sta

tes

1975 1980 1985 1990 1995 2000 2005 2010

Minimum wage laws as Poverty Policy Keil et al. paper

Estimate

Estimate + 2 s.e.

Estimate - 2 s.e.

-.4

-.3

-.2

-.1

0

.1

.2

.3

.4

.5

Min

Wag

e E

last

icity

1990 1992 1994 1996 1998 2000 2002 2004 2006

End of sample period

Minimum wage laws as Poverty Policy Lang

In general, employment effects must be pretty modest.

In 1992, about 7% of all workers earned minimum wage or below. The 1992 increase in min wage increased from $3.80 to $4.25 (a 12%

increase). Estimates of labor demand curves suggest this should lead to a decrease

in employment for low wage workers of about 6%.

However, since less than 10% of workers are directly affected by such an increase, we would have to find an employment effect on the order of 0.6%, which would be hard to pick up given seasonal fluctuations and other state variation.

Minimum wage laws as Poverty Policy In general, studies show that min wage

increases may lead to slight reductions in earnings inequality, but no studies have picked up measurable effects on poverty.

This is likely due to small offsetting employment effects, small wage increases associated with minimum wage increases, and the fact that much of the poor have only limited connections to labor force, due to low skills, health constraints, substance abuse problems, daycare issues, and transportation issues.

Other Attempts at Labor Market Regulation In 1991, the Americans with Disabilities

Act was passed. Law not only made it illegal to discriminate

against individuals with disabilities, it also required employers to make “all reasonable” accommodations” for disabled employees.

This included ramps, elevators, and widened doors for wheelchairs, braille keyboards and interfaces for the blind, and audio software for the deaf

How might employers react to the ADA law?

Other Attempts at Labor Market Regulation

Labor Market Regulation In general, my take is that trying to regulate the labor market is

always subject to the “no free lunch” principle. Employer behavior is not static. They, more than anyone, react to

changes in incentives.

The benefits of markets is that market forces push employers toward efficiency, or finding the cheapest way possible to produce something (which is then reflected in the price paid by consumers).

Hence, market forces and market regulation are generally in conflict, which will generally result in any positive impact of law on targeted group mitigated (at least to some extent) by firm reaction.

However, there is a clear role for market regulation in the presence of “market failures” (most often asymmetric or imperfect information). Question is how to address those market failures in most efficient

way.