3b. Minimum Wages

Question 1

When did the UK introduce a national minimum wage?

Answer 1

As the last OECD country, in 1999

Question 2

In the UK there are _____________ minimum wages

Answer 2

In the UK there are VARIOUS minimum wages

Question 3

Who benefitted from the introduction of minimum wages?

Answer 3

• Women
• Part-time workers
• Low qualified
• Private sector
• non-union workplaces

Question 4

What is the main reason why it is argued that the NMW does not alleviate poverty?

Answer 4

1. Poverty is caused by lack of work – (eg. unemployment, long-term sick..), so these people are not recipients of the higher wage and thus don’t benefit, staying poor.

Question 5

Why are the absolute poorest unemployed people going to stay poor after the introduction of a NMW?

Answer 5

People that dont have a job.. well after this introduction they’re still not going to have a job… doesn’t impact their wealth at all…

Question 6

What did the UK data on NMW say?

Answer 6

[Only 3.7 percent of the poorest households gained from the minimum wage, but 29.4% of the poorest WORKING households gained from the minimum wage]

Question 7

Is this statement wrong: “Even amongst working households, Minimum Wage recipients do not live in the poorest households – they are women and young people living in households with other wage earner.”

Answer 7

But second assertion is wrong – amongst just working households, beneficiates of NMW come from the poorest ones

only about 2% from the top decile benefit, the lowest of all deciles!

Question 8

Draw the basic DIG of a minimum wage imposition on the labour market?

Answer 8

-> if you impose a minimum wage than the existing market, then that should decrease employment (baseline economic model)

Question 9

What is the belief of the baseline economic model when a minimum wage is imposed?

Answer 9

If you impose a minimum wage than the existing market, then that should decrease employment

Question 10

What did the first economists do to analyse the impacts of NMW, and why was it flawed?

Answer 10

They had an aggregated national series over time
-> Then ran a (usually OLS) linear regression using those time-indexed observations:

= A linear regression on aggregate time-series data

Question 11

Why is the “linear regression on aggregate time-series data” a poor way of analysing NMW impacts?

Answer 11

NO COUNTERFACTUAL

The problem: lots of other things change over time too (business cycles, inflation, policy changes…). So if employment falls after a MW increase, you don’t know if it was MW or or something else.

Question 12

What is a better way of analysing NMW impacts

Answer 12

Quasi-Experiments
== are basically built to create a believable counterfactual.

== A counterfactual is the alternative world outcome that you can’t actually observe, because history only happened one way.

Question 13

What was the good “quasi-experiment” example in the lecture?

Answer 13

Card and Krueger paper (1992)

1992 -> minimum wage increased in New Jersey from $4.25 to $5.05 an hour. Left unchanged in neighbouring Pennsylvania.

(looked at restaurant workers specifically)

Question 14

In the Card and Krueger paper (1992), which city was the treatment and which the control?

Answer 14

CONTROL: Pennsylvania (unchanged)

TREATMENT: New Jersey (from $4.25 to $5.05)

Question 15

What were the “WAGE” results from the Card and Krueger paper (1992)?

Answer 15

Wage remained relatively unchanged in Pen, even though NJ saw an increase in wage (because of the min wage imposition)

Question 16

What were the “EMPLOYMENT” results from the Card and Krueger paper (1992)?

Answer 16

Actually saw an INCREASE in employment, compared to a fall in Pen!

! These are mean employment levels. So in other words the average employment level across these restaurants was 20.4 workers before the ∆MW. !

Question 17

If you only had the value of the NJ wage change, would it still be useful?

Answer 17

NO…

If you looked at NJ alone, someone could say “Well something could have happened other than the MW that caused this change”, which is why the Pen control group is important !

Question 18

What was the criticism to the results from Card and Krueger (1992)?

Answer 18

C&K provided some robustness checks:

• Used high-paying restaurants in NJ as control group (instead of Pen restaurants)
• Omitted firms contacted more than twice
• Allowed for restaurant closures

Yet… A negative effect of minimum wages on employment was never found.

Question 19

What stat method did Card and Krueger (1992) use?

Answer 19

Differences-in-Differences

(You subtract two changes to isolate the effect of a policy.)

Question 20

If there are little employment effects for the NMW, but higher wages… how is this possible???

Answer 20

IT MUST HAVE COME FROM SOMEWHERE..

So these were examined:
- Customers (higher prices)
- Firms (lower profits)
- Workers (higher productivity)