Channels of Adjustment in Labor Markets: The 2007-2009 Federal Minimum Wage Increase

In the debate on the economic effects of labor market regulation much work has focused on minimum wages. A legal minimum wage remains one of the most controversial policy issues. The controversy arises for two main reasons: first, there is no consensus over the economic impacts of the minimum wage mandate, especially its effect on employment, and, second, there is a disagreement over the empirical methods used to identify the minimum wage effects. Although the standard competitive model predicts that wage floors should have a negative impact on employment, empirical work shows mixed results. This dissertation explores a number of adjustment channels that can explain the paradox of the small and insignificant employment effects uncovered in the MW literature. Specifically, the economic impact of the most recent 2007-2009 Federal minimum wage increase (from $5.15 to$7.25 an hour) is analyzed using a sample of quick-service restaurants in Georgia and Alabama. In contrast to prior studies, store-level bi-weekly payroll records for individual employees are used, allowing greater precision in measuring the relative cost-impact of the MW on establishments. Despite significant variation in the cost-impact of the three-stage MW increase across establishments, regression analysis finds lack of a negative effect on employment and hours following each MW increase. Additional channels of adjustment are explored using unique data from manager surveys. Evidence suggests that higher product prices, lower profit margins, wage compression, reduced turnover and higher performance standards largely account for insignificant employment effects. These results are consistent with a number of alternative theoretical models of labor markets. An expanded version of the perfectly competitive model that incorporates additional margins of adjustment is also compatible with the reported findings

Minimum Wage Channels of Adjustment

The economic impact of the 2007-2009 increases in the federal minimum wage (MW) is analyzed using a sample of quick-service restaurants in Georgia and Alabama. Store-level biweekly payroll records for individual employees are used, allowing us to precisely measure the MW compliance cost for each restaurant. We examine a broad range of adjustment channels in addition to employment, including hours, prices, turnover, training, performance standards, and non-labor costs. Exploiting variation in the cost impact of the MW across restaurants, we find no significant effect of the MW increases on employment or hours over the three years. Cost increases were instead absorbed through other channels of adjustment, including higher prices, lower profit margins, wage compression, reduced turnover, and higher performance standards. These findings are compared with MW predictions from competitive, monopsony, and institutional/behavioral models; the latter appears to fit best in the short run.minimum wages, employment, labor market adjustments, labor market theories

Minimum Wage Channels of Adjustment

Industrial Relations, forthcoming Abstract: The effects of minimum wage increases in 2007-2009 are analyzed using a sample of restaurants from Georgia/Alabama. Store-level payroll records provide precise measures of compliance costs. Examined are multiple adjustment channels. Exploiting variation in compliance costs across restaurants, we find employment and hours responses to be variable and in most cases statistically insignificant. Channels of adjustment to wage increases and to changes in non-labor costs include prices, profits, wage compression, turnover, and performance standards

Estimating the health and socioeconomic effects of cousin marriage in South Asia

The effects of marriage between biological relatives on the incidence of childhood genetic illness and mortality are of major policy significance, as rates of consanguinity exceed 50% in various countries. Empirical research on this question is complicated by the fact that consanguinity is often correlated with poverty and other unobserved characteristics of households, which may have independent effects on mortality. This study has developed an instrumental variables empirical strategy to re-examine this question, based on the concept that the availability of unmarried cousins of the opposite gender at the time of marriage creates quasi-random variation in the propensity to marry consanguineously. Using primary data collected in Bangladesh in 2006-07 and Pakistan in 2009-10, the study found that previous estimates of the impact of consanguinity on child health were biased and falsely precise. The study also empirically investigated the social and economic causes of consanguinity (including marital quality) and concludes that marrying a cousin can have positive economic effects for one\u27s natal family, by allowing deferral of dowry payments until after marriage