Friday, February 21, 2014

Knowin' how to look for it

We paraphrase Paulie's (The Pope of Greenwich Village) definition of success to describe Jonathan Meer and Jeremy West's approach to statistical proof in Effects of the Minimum Wage on Employment Dynamics. Not because they're New York hustlers, but because the two Aggies have some street smarts;
The voluminous literature on minimum wages offers little consensus on the extent to which a wage floor impacts employment. For both theoretical and econometric reasons, we argue that the effect of the minimum wage should be more apparent in new employment growth than in employment levels. In addition, we conduct a simulation showing that the common practice of including state-specific time trends will attenuate the measured effects of the minimum wage on employment if the true effect is in fact on the rate of job growth. Using three separate state panels of administrative employment data, we find that the minimum wage reduces net job growth, primarily through its effect on job creation by expanding establishments. These effects are most pronounced for younger workers and in industries with a higher proportion of low-wage workers. [HSIB's bold, of course]
In other words, the infamous Card-Krueger approach--followed by a long line of Supply-Demand denialists--is the wrong place to be looking. Even if the light if better there. As the wise guys from Texas put it;
...difference-in-differences identification strategies [the denialists preferred approach] can...find an effect on the level of employment if there is a sufficiently rapid drop in the number of jobs relative to the counterfactual. Given the small margin of net job expansion relative to total employment, this effectively necessitates a (temporary) reduction in the absolute size of the labor force. However, if the minimum wage instead affects the rate of net job growth, then it will take some time for the effect to be reflected in the level of total employment to a degree which would be statistically detectable.
Which is why some economists can claim that there is no disemployment effect from raising minimum wages, while fooling themselves into believing their own sleight-of-stats. Again, they're looking in the wrong place.

No comments:

Post a Comment