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).
Figure 2: 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). Source: BLS, author’s calculations.
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, [1], [2]). 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…
I think, it was Milton Friedman, who said, if you just want to create jobs, give them spoons instead of shovels.
There are many factors why Minnesota’s economy has outperformed Wisconsin’s. And, Wisconsin may be closer to full employment. So, you can’t blame Walker.
The goal of a higher minimum wage should be to increase productivity rather than jobs. The economy will absorb the excess labor, in many ways, and the negative employment effect will be small or neutral.
An effective minimum wage for all firms increases competition, because they’re on a level playing field.
Poorly run businesses believe paying their workers the lowest possible wage makes them competitive, and many business owners think that way. They’re either economically illiterate or should be put out of business through leveling the playing field. Better managed businesses will take their market share.
Lord – you completely blew the story regarding Milton Friedman. Try Mark Perry’s account:
http://www.aei.org/publication/milton-friedman-shovels-vs-spoons-story/
“Forthcoming” working paper?!?!?!?! Dear Sir, this is not good enough. [ snap snap ]
https://www.youtube.com/watch?v=eQM69FCp9cc
This is an honest (I have no idea either way) and genuine question. Is there any way to determine if the use of kiosks in restaurants etc could be skewing the numbers?? i.e. Making the effects of a higher minimum wage on employment look worse than it really is, or even making the “effect” of the minimum wage “null and void”?? I would suggest with all due respect to the two cerebral researchers, Chinn and Johnston, that if they haven’t accounted for the effects of kiosks now, the ability to do so and properly calibrate the effects thereof will be very important to economic researchers, desirous of objective numbers, in the near future.
https://buffalonews.com/2018/05/03/the-rise-of-the-machine-stores-and-restaurants-turn-to-self-service-kiosks/
Fast food restaurants have been using technology to improve labor productivity for decades and decades,
— remember when you did not have to fill up your coke cup yourself?
Why is this particular example any different than earlier examples?
Remember, displacing labor in low wage, low productivity jobs is a good thing, it is how we improve our standard of living.
Why do you thing preventing firms from improving productivity is a good thing?
Cheap labor is the problem,not the solution.
Berkeley paper related to the topic:
http://irle.berkeley.edu/files/2018/09/The-New-Wave-of-Local-Minimum-Wage-Policies.pdf
Middle of page 39:
In addition to our findings of positive effects on earnings, we do not detect negative significant employment effects in any of the individual cities, or when pooling them together.
Am I reading that right? So fast food employee hours worked has gone down by roughly 3% but their wage per hour has gone up about 30%. Sounds like a pretty good deal. Most people would be delighted to work fewer hours and get more money.
joseph: I don’t know about hours, but employment has fallen 3%.
@ Menzie
Let’s take an admitted hypothetical. Let’s say that each major food franchise has a single kiosk at each restaurant. And that single kiosk saves them from employing 0.5 workers (yeah that’s right, 1/2 of a worker, you could equate it to hours if you like). Think about a living human being at a cash register, basically inputting the order into the register and handing someone a bag. I can at least make an argument that 0.5 workers a day is a low estimate on the cost savings of a kiosk. How would that rank on your 3%??? The gradual intermittent change in kiosks is happening NOW. So….. I think you can say “The effect of kiosks on employment is small enough not to make a difference in our numbers in October 2018.” And frankly, I think you are on thin ice making that argument. Will you be able to say that in December 2020?? I think the answer there is a definitive NO.
Moses Herzog: Automation has always been occurring; it’s not clear that adjusting for kiosks is the correct approach, since some of the automation is endogenous (to minimum wage), and some exogenous (due to exogenous technical change).
I hate to be a stubborn SOB, but…. (you know me).
Even you would admit that a kiosk is different than a malt machine, microwave etc. Any way you slice it, it’s going to lower the number of those employed as the new technology is implemented. A malt machine makes a task easier and quicker. But you still have to have someone manning it whether the task is slow or fast. The kiosks (other than mobile phone order apps, which would still/also lower the employment numbers in a way that skews the effect of the higher wages. i.e exaggerates the effects of increased wages) are the first thing (directly related to food chains) that I am aware of that is actually replacing a human being. Not “making a task easier/quicker”, it is replacing the human being.
It’s quite rare I disagree with you as it relates to your objective research (even politics we are pretty close). On the former’s basis alone you should humor my thought.
“Employment has fallen 3%”
In the fast food business, employment and hours are pretty much equivalent to a first order approximation. Many work part time and the fast food business has a notoriously high annual employee turnover of over 150%. So pretty much anyone who wants to work in that field works at least part of the year. So in aggregate, I would assume that you have a very similar number of annual workers but on average working roughly 3% less hours.
Still sounds like a heck of a deal for a 30% wage increase.
It’s less than about 30%, because some workers earn between the old minimum wage and the new minimum wage, and may get a raise only to the new minimum wage.
Did you EVER take a course in microeconomics? Seriously? If someone is receiving a wage above the wage floor or your “old minimum wage” then the floor is not operative. The market is. And if market conditions improve for this worker then his wage rises even before any increase in the wage floor.
Anyone with even the most remote knowledge of microeconomics knows this. But based on your latest babble – you clear do not.
Pgl, that’s one of the dumbest responses I’ve ever heard, and you’ve made plenty of them.
Don’t you have anything better to do, like take econ 101?
I’ve taken enough classes in grad Labor Economics to take the comp exams, but I passed my two fields of specialties in other fields.
And, I’m sure, half the country doesn’t appreciate you calling them racist, along with rewriting history by group think wacko leftists, including the mainstream media, who only has a hateful and ignorant version of U.S. history. Yes, I’ve taken Western Civilization I and II, along with History of Economic Thought too, and that was just in college.
“Yes, I’ve taken Western Civilization I and II, along with History of Economic Thought too, and that was just in college.”
and yet peakloser, you failed to LEARN anything! well spent tuition money. according to your arguments, if a group of germans were to put up a statue of adolf hitler in germany, it would be ok and they should not be thought of as anti-semites or nazis?
as for the confederates, they fought a war in support of slavery and against the united states of america. there is no rewriting of that history. it is simply a history we should not celebrate. in reality, you seem to be the one who is trying to rewrite history in a more rosy color. sad.
Baffling, you judge history by 21st standards and compare half of America in the 19th century to Nazis. There’s more to the Civil War than slavery, e.g. the South wanted to be independent from the federal government. And, all Americans should be allowed to memorialize everything that took place.
Your hateful and simple view of American history ignores Washington and Jefferson owned slaves, along with many others. And, most Northerners believed blacks were inferior. Judging what was common in prior centuries by today’s standards means you hate human history.
The Civil War was a War of Independence.
The South wasn’t trying to take over the North.
It just wanted to cede from the Union.
Like Americans did against the British.
PeakTrader You have a shockingly uninformed and ignorant view of the Civil War. Was your school even accredited? The south wanted to secede because they wanted to preserve slavery, plain and simple. It was about slavery. Try reading South Carolina’s Article of Secession. The article makes it quite plain that it seceded from the Union because it believed its “peculiar institution” was threatened. Is defending the property rights of slaveholders your idea of a noble cause comparable to the American Revolution??? If so, then you have one perverted sense of political morality.
http://avalon.law.yale.edu/19th_century/csa_scarsec.asp
Returning to the topic of wages, I get the sense that you are conflating the minimum wage, the reservation wage and the efficiency wage. Those are three different creatures, but in your comments you seem to be jumbling them all together. Maybe you need to reread some of your old labor economics textbooks. And speaking of books, how about that list of the last ten history books you’re recently read. Are we going to see that list about the time that we see Trump’s tax returns?
peak, they wanted to leave the union so that they could keep slavery legal. they were not fighting for independence. they were fighting to keep their way of life the same. there is no honor in fighting for slavery-and we acknowledge that today in our actions. that is the history. i am not erasing it. but i sure as hell am not going to memorialize their actions and try to make them honorable.
“Baffling, you judge history by 21st standards and compare half of America in the 19th century to Nazis. ”
incorrect. you have a reading comprehension problem. but i see you also failed to answer whether you would support a german group of nazis in germany who wanted to erect a statue of adolf hitler in order to not forget their nazi heritage.
“It just wanted to cede from the Union. Like Americans did against the British.”
the americans won their war with the british-so the victory should be celebrated. the south lost their war-their loss should not be celebrated. only a russian troll farm would overlook such a critical distinction. talk about trying to rewrite history!
2slugbaits, actually, it was about economics, something you skirt around.
The South was mostly an agrarian society.
Are you going to judge human history by 21st century standards too.
And, what does your statement about the minimum wage have to do with my statement? You believe what I said is not true?
Civil War econ question (asked by numerous historians): has there ever been a would be country–i.e., the CSA–so ill equipped to wage war in its own defense? One so stunted economically that financing this war (or any war) was a near impossibility? Especially one against a country with far greater resources and three times the population?
Somewhere, there has to be a Jefferson Davis promise: Read my lips: no new taxes…or much in the way of taxes at all. Remember, we’re all sovereign states now.
Given the war’s outcome, there is certainly a more modern term that fits these glorious leaders: clueless.
Good stuff Menzie. Anything on restaurant/service employment in general? Do people “upscale” as wages go up in Minnesota, so they trade a fast food job for a waitstaff job at somewhere slightly pricier?
“I’ve taken enough classes in grad Labor Economics to take the comp exams, but I passed my two fields of specialties in other fields.”
PeakTrader has clearly not taken Labor Economics. Look at the stupid comment he is trying to defend here. Someone is earning more than the minimum wage and yet he does not get that it is market conditions that is determining his wage rate? And I thought Larry Kudlow was stupid!
Hey – Peaky. Who wrote your Labor Economics text book? I bet you do not know. Let me help you – Dr. Seuss!
“PeakTrader
October 25, 2018 at 8:40 pm
The Civil War was a War of Independence. The South wasn’t trying to take over the North. It just wanted to cede from the Union.”
Andy why? Oh yea – so white plantation owners could keep black people as slaves. Yes we know Peaky – you consider that the good old days!
PeakTrader
…actually, it was about economics, something you skirt around.
Yes, it was about the economics of slavery. But your admission that it was about the economics of slavery is a little hard to reconcile with your earlier claim that ” There’s more to the Civil War than slavery, e.g. the South wanted to be independent from the federal government.” But then again, you frequently contradict yourself.
The South was mostly an agrarian society.
I’m pretty familiar with the economics of the ante bellum South. I should be. One of my economic history profs was Robert Fogel.
Are you going to judge human history by 21st century standards too.
I’m judging it by the mid-19th century standards north of the Mason-Dixon line. In the late 18th century even most Southerners agreed that slavery was immoral; they just didn’t know how to escape from the trap they were in. It was thanks to slavocrats like John C. Calhoun that Southerners started to justify slavery a few decades before the Civil War. Learn some history. And how about that list of your ten most recently read history books?
And, what does your statement about the minimum wage have to do with my statement?
You seem to be arguing that a higher minimum wage increases productivity. It’s a higher efficiency wage that increases productivity, but only if there is a significant gap between the efficiency wage and the value of the marginal product of labor or the minimum wage.
2slugbaits, you see contradictions, because you’re illogical.
There can be both slavery and independence.
And, a minimum wage and an efficiency wage can both raise productivity.
peak trader, you are either woefully ignorant of slavery and the civil war, or simply a troll stoking confederate nostalgia intentionally. your continued defense of the institutions that promoted slavery are simply racist in the 21st century.
Baffling, the pyramids were built by slaves. It’s high time they’re torn down. And, we need to completely bury Egyptian culture too, because it was only about slavery.
Afterall, you’re just a hateful and ignorant person, who believes Southerners were Nazis.
I wonder, which side Washington and Jefferson would have taken, if they lived in the 1860s.
It’s all about Southern racism to you, and there was no racism in the North.
PeakTrader the pyramids were built by slaves.
Actually, that’s a common myth. Again, learn some real history.
2slugbaits, since you know for sure slaves weren’t involved in building the pyramids, why don’t you give us a history lesson by listing the largest world structures built by slaves.
So, they can be torn down or at least spray painted.
PeakTrader why don’t you give us a history lesson by listing the largest world structures built by slaves.
Trump Tower.
How’s that list of your latest history readings coming along?
the confederate statues were not erected by confederate soldiers. they were erected by a generation or two that followed the loss of the war. peakloser, it is really, really stoopid to compare the building of pyramids to confederate statues meant to promote jim crow laws. i used to think you were either ignorant of the civil war and its history, OR intentionally stoking hatred. i no longer believe the OR statement is proper, the conditional should include AND. not only are you ignorant of the topic, but you intentionally do not want to actually learn the truth. it certainly takes a rather pathetic soul to live your life.
so we have peakloser, who failed as a banker and now advocates silly economic policies. he is an immigrant to this country, and feels it is better to create walls against current immigrants so they cannot obtain the same opportunities GIVEN to him. and he was welcomed into this country and permitted to freely express his voice and religion, but supports an era when a white man could own a black person as property, and another era when a white man could kill a black man for looking at his wife wrong. peakloser, a real american patriot.
Baffling, that’s quite a fairy tale.
Only another lunatic would take you seriously.
its a pretty good description of you confederate peak. you were not born in the us, you failed as a banker, and you defend those who support slavery and bigotry. this is the bed you made peakloser.
Baffling, all lies in such a short sentence – amazing.
Were you not a banker in the past?
I wasn’t Don Drysdale in the Beverly Hillbillies.
corev, you were a banker who lost his job. i think it would be instructive to look up the definition of lies in the dictionary, as it appears you are not using the term properly in your commentary. and at any rate, i find a trump supporter who has issues with lies to be ironic, don’t you think?
peakloser, you were a banker who lost his job. i think it would be instructive to look up the definition of lies in the dictionary, as it appears you are not using the term properly in your commentary. and at any rate, i find a trump supporter who has issues with lies to be ironic, don’t you think?
PeakTrader It was Milburn Drysdale, not Don Drysdale. Don Drysdale was a pitcher for the Dodgers, although he did have a guest appearance on the Beverly Hillbillies show.
Seems PT has always been infatuated with those at the top of the economic ladder, the Civil war being no exception.
It was the top 3% of southerners who owned 20 or more slaves. This same top 3% was also exempt from military duty (as well as their overseers) . That was especially important for large landowners who may have developed bone spurs while operating the plantation.
And, if necessary, any southerner drafted into service could hire a substitute to serve in his place.
But really given current events, who’s surprised these aristocrats and their legislators could convince thousands of barely educated southerners to fight and die for a glorious cause?
Pulling the wool—or the cotton—over their eyes wasn’t that hard. Same as today.
Those statues represent many things to many people.
Only an ignorant person believes they mean one thing.
At West Point, Lee’s name is on a building, gate, road, etc..
Re: slave building(s): many slaves were indeed trained to build. They were apprenticed as carpenters, masons, smiths, coopers, et. al. It is more than reasonable to assume that much building was done by slaves for very little compensation (more went to the owner than to the worker).
And since slaves could be hired and “rented out”, tradesmen who worked for wages were often disadvantaged by such a system.
Add that to the fact that 75% of southerners owned no slaves, and you understand why the economic practices of that top 3% delayed any substantial growth of a middle class dependent on decent wages.
Sadly, these were the southerners who were fighting to retain a system that exploited them in many ways. Guess they just wanted to make the South great again.
PeakTrader: “Those statues represent many things to many people.”
Actually, those statues represent exactly the same thing to neo-Nazis and African Americans. And we all know exactly what that thing is.