No Apparent Motive

Before I went on vacation last week, CEPR put out a new report that Janelle Jones and I wrote evaluating the impact of five different policies that seek to improve job quality in the United States.

The policies we examined were universal health insurance, a universal retirement system (over and above Social Security), a large increase in college attainment, a large increase in unionization, and gender pay equity.

Here are the main findings, from the executive summary:

First, reconnecting job quality to economic growth will likely require big steps. The policies simulated in this paper would all qualify as major policy initiatives, yet none would create a sufficient number of good jobs to employ even half of the U.S. workforce.

Second, eliminating bad jobs appears to be easier than creating good jobs. Most of the proposals examined –especially universal programs such as universal health care or a universal retirement plan– do more to reduce the share of bad jobs than they do to increase the share of good jobs. (Our classification system divides jobs into three categories: good jobs, bad jobs, and jobs that fall in between.)

Third, a combination of complementary policies appears to be significantly more effective than if any one of the policies is enacted on its own. Separate implementation of a universal retirement plan or health insurance would both greatly boost the share of workers in good jobs, but the simultaneous implementation of both policies would raise the good-jobs share by more than the sum of the two distinct policies.

Fourth, gender pay equity would go a substantial way towards eliminating the large good-jobs gap between men and women. By our calculations, a policy of pay equity for women and men with the same educational qualifications would reduce the gender good-jobs gap by about 90 percent.

Finally, increasing unionization appears to be substantially more effective than a comparable expansion of college attainment. Given that increasing college attainment is a long and expensive process, these findings suggest the importance of emphasizing unionization as much or more than college attainment as a key path to improving job quality.

And here is a chart with the results of the main policy simulations:

You can read the whole report here (pdf).

In a full page ad in today’s Politico, the conservative Employment Policies Institute (not to be confused with the progressive Economic Policy Institute) claims that “85 percent of the most credible economic research from the last 20 years” demonstrates that the minimum wage “reduces opportunities for the least-skilled jobseekers.” In making that claim, the Employment Policies Institute cites research published by economists David Neumark and William Wascher in 2007.

The problem here is that Neumark and Wascher make a decidedly subjective selection of studies to draw their conclusion. We actually have objective evaluations of the full body of recent minimum wage research and these point strongly in the direction of no significant effects on employment.

In their analysis,* Neumark and Wascher reviewed 102 studies of the minimum wage, 33 of which they declared “credible.” Of the 102 studies examined, only 53, however, used data for the United States, which would seem to be an important criteria for evaluating the employment impact here. Of these 53 U.S. studies, 19 earned the rating of “credible” from Neumark and Wascher. But, fully five of these 19 — more than one-fourth — were ones that Neumark and Wascher had conducted themselves. This raises real questions about the objectivity of Neumark and Wascher’s evaluations.

Neumark and Wascher are long-time opponents of the minimum wage. I have, for a long-time, been a supporter of regular, moderate increases in the minimum wage. So, who are you going to believe? Well, fortunately, we have statistical techniques designed to use objective criteria to sift through and evaluate situations where there are a large number of separate statistical studies on the same topic. These “meta-study” techniques are widely used in medicine, for example, where they help doctors to draw more reliable results from a large number of clinical studies than is possible from any individual study.

In a 2009 paper (behind a paywall) in the peer-reviewed, British Journal of Industrial Relations, Hristos Doucouliagos and T.D. Stanley report the results of their meta-study of 64 studies of the effects of the minimum wage on teenage employment in the United States. The chart below, taken from their paper, presents their key finding. The estimated employment effects, which are displayed along the x-axis, include both negative and positive values. Following standard statistical procedures, however, the researchers have also weighted each estimate by its statistical precision, which is measured on the y-axis. The higher up an estimate lies, the more precise it is.

Source: Doucouliagos and Stanley (2009).

What is most striking about the chart is that all of the most precise estimates are at or very close to zero — the point where the minimum wage has no effect on teen employment.

Doucouliagos and Stanley’s more objective approach leads them to conclude that the minimum wage has “an insignificant employment effect (both practically and statistically).” And these results do not depend on anyone’s subjective judgment of the “credibility” of the underlying studies.

[*I refer here to the 2006 National Bureau of Economic Research version of their paper, which is available for download here behind the NBER's paywall or here, for free, at the American Enterprise Institute's website. I don't believe that there are any differences between this analysis and the one published in 2007 in Foundations and Trends in Microeconomics and cited in the Employment Policies Institute ad.]

(This post first appeared at the CEPR Blog.)

On her show last Thursday, Rachel Maddow ran an exceptionally good six-minute segment on the politics and economics of the minimum wage. It was all made even better by a reference to my recent CEPR report (pdf) that tries to explain why the available academic research so consistently finds little or no employment impact of increases in federal, state, and  city minimum wages.

A screen shot from an online video of the segment:

But watch the whole thing.

In his State of the Union addresss on Tuesday, President Obama proposed increasing the federal minimum wage as part of a broader agenda to support the middle class. The next day, CEPR released a report (pdf) I had (with great serendipity) recently finished reviewing the large body of research on the employment effects of the minimum wage.

One of the most puzzling empirical questions in labor economics is how it is that researchers consistently find large positive effects of minimum wages on the earnings of low-wage workers, but little or no effect of minimum wages on the employment prospects of the same low-wage workers.

My new report focuses on two aspects of the minimum wage that might explain this apparent paradox. First, in the scheme of things, minimum-wage increases are fairly small economic events. Whether measured as a share of total costs facing employers (labor and non-labor costs, such as energy, rent, interest payments, etc.), or just total wage and benefits costs of all employees, or even just the wage costs of low-wage workers themselves, minimum-wage increases are just not that big of a deal.

Second, as economists Barry Hirsch, Bruce Kaufman, and Tatyana Zelenska have argued (pdf), employers have many possible “channels of adjusment” at their disposal. One of these is to cut employment, which is where most of the economics research has focused. But, my new CEPR report reviews evidence for and against 10 more possibilities, including increasing operational efficiency, reducing turnover costs, reducing hours instead of employment, and many others.

The report has received some good press, including this nice summary piece by Brad Plumer at the Wonkblog and this post by Paul Krugman.

CNNMoney has created a nice infographic using data from a new report (pdf) by the Center for College Affordability and Productivity:

Source: CNNMoney analysis of data from Center for College Affordability and Productivity, 2013.

The report, citing data from the Bureau of Labor Statistics, documents widespread “underemployment”of college graduates. Against the conventional wisdom, the authors (who include conservative economist Richard Vedder) write: “We are churning out far more college graduates than required by labor-market imperatives.”

Janelle Jones, Milla Sanes, and I have a new short CEPR report with data on the change in union membership last year across the 50 states and the District of Columbia. The main value of the report is that it breaks down union membership in each state by the public and private sector, something not done in the official Bureau of Labor Statistics analysis.

Our full report is available here in pdf format. We also have a blog post with most of the information here.

To give you a taste, this chart from the report shows the change between 2011 and 2012 in public-sector union membership in each state:

Big drops in New York, Wisconsin, and Ohio.

Larry Mishel and Nicholas Finio of the Economic Policy Institute have some new numbers out today on how high earners have been faring in the economic recovery. Not too surprisingly, they appear to be doing just fine, thank you.

The whole report is worth a read, but I want to call attention to one chart from their analysis:

Source: Mishel and Finio (2013).

The figure shows the share of total annual wages received by the top one percent and the top 0.1 percent of earners, from 1947 through 2011. The rise since the 1970s is striking. But, equally important, is that the share of earnings going to the top was constant or even falling for several decades after World War II –a period of rapid growth when workers at the bottom and the middle were just as likely as those at the top to share in the economy’s gains.

There is nothing inherently American about high and rising inequality.

On January 1, the maximum amount of annual earnings subject to the Social Security tax increased to $113,700 (up from $110,100 last year). In response, Nicole Woo, Janelle Jones, and I have updated our estimates of the share of workers earning above the new “payroll tax cap.”

According to our analysis, which is based on earnings data from the American Community Survey (ACS) for 2011, about one in 20 U.S. workers have annual earnings that put them above the new, higher payroll tax cap. Our full report provides breakdowns by gender, race and ethnicity, age, and state of residence.

We also produced corresponding estimates of the share earning above $250,000 per year. (There have been proposals in Congress to apply the payroll tax to earnings above $250,000 per year, but not to earnings between the new $113,700 cap and $250,000.) Our data show that only about 1.3 percent of workers earn more that $250,000 per year.

One nice innovation in the updated report is that we’ve abandoned the pie chart that I complained about in an earlier post:

Source: CEPR, 2012.

For the new paper, we’ve gone with boxes instead:

Source: CEPR, 2013.

Much better.