An informal assessment of the impact of the minimum wage change suggests a large negative impact. Appearances can be deceiving. From a forthcoming working paper by me and Louis Johnston, a graph of the log ratio of MN employment in limited service eating establishments to Wisconsin (blue, left scale), and log ratio MN/WI minimum wage (red, right scale).
Running a regression 1990-2018M07, one finds:
(emplMN-emplWI) = 0.026 – 0.053(minwMN-minwWI)
Adj.-R2 = 0.005, N = 343, DW = 0.03. bold denotes significance at the 10% msl using HAC robust standard errors.
Hence, the conclusion that the minimum wage has a negative impact on employment in “fast food” restaurants seems confirmed. However, we know that many other variables are changing at the same time; in particular, the Minnesota labor market was booming during the Walker years. Job opportunities in the rest of the economy could draw workers away from the fast food sector.
The minimum wage represents the opportunity cost of hiring to limited service eating establishments. We use nonfarm payroll employment ex.-fast food to proxy for alternative demand for fast food employment. Our conjecture: as this variable increases, labor is pulled out of fast food employment. To omit this factor would bias estimates. Including it, we find:
(emplMN-emplWI) = –0.023 + 0.088(minwMN-minwWI) – 1.006(nfpMN-nfpWI)
Adj.-R2 = 0.145, N = 343, DW = 0.04. bold denotes significance at the 10% msl using HAC robust standard errors.
The coefficient on the minimum wage is positive, while the coefficient on labor market conditions is negative. (This interpretation is consistent with the view that for most of the Walker regime, labor markets have exhibited lackluster performance, , ). Contra CROWE, we find the significant negative impact of the MN minimum wage to be a fragile inference.
The low DW statistics indicates extensive serial correlation. The conventional approaches would either (1) first differencing, or (2) a cointegration approach. The first obliterates any statistical significance. The second fails to yield evidence of cointegration. Hence, we conclude that it is a parlous enterprise to rely upon first appearances.
By the way, does raising the minimum wage raise fast food prices? A quasi differences-in-differences approach suggests that if the effect exists, it is hard to discern. We compare Minneapolis/St. Paul vs. Milwaukee/Racine.
Figure 4: Log price of food in limited service eating establishments, Minneapolis-St. Paul vs. Milwaukee-Racine (blue), and log Minnesota/Wisconsin minimum wage. Source: BLS, and author’s calculations.
A differences-in-differences approach indicates a negative impact on relative prices of the 2014 minimum wage increase; nonsignificant positive coefficient if time trend included. Departing from a differences-in-differences approach, we find the actual level of the minimum wage has a negative (and significant) impact…