The Minimum Wage and the Great Recession: A Response to Zipperer and Recapitulation of the Evidence

Clemens, Jeffrey (2017): The Minimum Wage and the Great Recession: A Response to Zipperer and Recapitulation of the Evidence.

Abstract

Clemens and Wither (2014) find that minimum wage increases contributed to employment declines among low-skilled individuals during the Great Recession. Zipperer (2016) argues that Clemens and Wither's estimates are biased. This paper assesses what underlies the difference between Zipperer's estimates and Clemens and Wither's estimates. I first show that Zipperer's control sets significantly attenuate the relationship between Clemens and Wither's ``treatment indicator'' variables and states' minimum wage rates. Scaling for this dilution of the underlying treatment accounts for nearly half of the difference between Zipperer's estimates and Clemens and Wither's estimates. Second, I show that the within-region variation on which Zipperer focuses attention biases his estimates towards positive values. Employment and income aggregates, as well as housing and construction indicators, reveal that within-region comparisons are prone to considerable upward bias. Florida, for example, experienced a far more severe housing decline than the regional neighbors for which several of Zipperer's specifications use it as the primary control. I show that Zipperer's estimates are quite sensitive to removing states with extreme housing crises from the sample, while the original Clemens and Wither estimates are not. I further show that Zipperer's specifications have implausible implications for the minimum wage's ``effects'' on employment within high skilled population groups. I conclude by recapitulating the basic facts underlying Clemens and Wither's assessment of the evidence.

• Item Type: MPRA Paper
• Language: English
• Keywords: Minimum Wage; Great Recession; Program Evaluation Methods
• Subjects: J - Labor and Demographic Economics > J2 - Demand and Supply of Labor; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs

References

[1] Allegretto, S., A. Dube, M. Reich, and B. Zipperer (2017): “Credible Research Designs for Minimum Wage Studies,” ILR Review, 70(3), 559–592.

[2] Autor, D. H., D. Dorn, and G. H. Hanson (2013): “The China Syndrome: Local Labor Market Effects of Import Competition in the United States,” American Economic Review, 103(6), 2121–68.

[3] Autor, D. H., L. F. Katz, and M. S. Kearney (2008): “Trends in US wage inequality: Revising the revisionists,” The Review of Economics and Statistics, 90(2), 300–323.

[4] Baum-Snow, N., and B. F. Lutz (2011): “School desegregation, school choice and changes in residential location patterns by race,” American Economic Review, 101(7), 3019.

[5] Bosler, C., M. C. Daly, J. G. Fernald, and B. Hobijn (2016): “The Outlook for U.S. Labor-Quality Growth,” NBER Working Paper 22555.

[6] Bound, J., and G. Johnson (1992): “Changes in the Structure of Wages in the 1980’s: An Evaluation of Alternative Explanations,” American Economic Review, 82(3), 371–392.

[7] Charles, K. K., E. Hurst, and M. J. Notowidigdo (2016): “The Masking of the Decline in Manufacturing Employment by the Housing Bubble,” The Journal of Economic Perspectives, 30(2), 179–200.

[8] Clemens, J. (2015): “The Minimum Wage and the Great Recession: Evidence from the Current Population Survey,”

[9] Clemens, J. NBER Working Paper 21830. (2016): “Redistribution through Minimum Wage Regulation: An Analysis of Program Linkages and Budgetary Spillovers,” in Tax Policy and the Economy, Volume 30, ed. by J. Brown. University of Chicago Press

[10] Clemens, J. (2017): “Pitfalls in the Development of Falsification Tests: An Illustration from the Recent Minimum Wage Literature,” Mimeo.

[11] Clemens, J., and M. R. Strain (2017): “Estimating the Employment Effects of Recent Minimum Wage Changes: Early Evidence, an Interpretative Framework, and a Pre-Commitment to Future Analysis,” NBER Working Paper 23084.

[12] Clemens, J., and M. Wither (2014): “The Minimum Wage and the Great Recession: Evidence of Effects on the Employment and Income Trajectories of Low-Skilled Workers,” NBER Working Paper 20724.

[13] Griliches, Z. (1977): “Estimating the returns to schooling: Some econometric problems,” Econometrica: Journal of the Econometric Society, pp. 1–22.

[14] Griliches, Z. (1979): “Sibling models and data in economics: Beginnings of a survey,” Journal of Political Economy, 87(5, Part 2), S37–S64.

[15] Katz, L. F., and K. M. Murphy (1992): “Changes in Relative Wages, 1963-1987: Supply and Demand Factors,” Quarterly Journal of Economics, 107(1), 35–78.

[16] Meer, J., and J. West (2013): “Effects of the Minimum Wage on Employment Dynamics,” NBER Working Paper 19262.

[17] Meer, J., and J. West (2016): “Effects of the Minimum Wage on Employment Dynamics.,” Journal of Human Resources, 51(2).

[18] Neumark, D., J. I. Salas, and W. Wascher (2014a): “More on recent evidence on the effects of minimum wages in the United States,” IZA Journal of Labor policy, 3(1), 24.

[19] Neumark, D., J. I. Salas, and W. Wascher (2014b): “Revisiting the Minimum WageEmployment Debate: Throwing Out the Baby with the Bathwater?,” Industrial & Labor Relations Review, 67(3 suppl), 608–648.

[20] Neumark, D., and W. Wascher (2006): “Minimum wages and employment: A review of evidence from the new minimum wage research,” NBER Working Paper 12663.

[21] Neumark, D., and W. Wascher (2017): “Reply to Credible Research Designs for Minimum Wage Studies,” ILR Review, p. 0019793917698429.

[22] Sorkin, I. (2015): “Are there long-run effects of the minimum wage?,” Review of Economic Dynamics, 18(2), 306–333.

[23] Strain, M., and P. Brummund (2016): “Real and permanent minimum wages,” Discussion paper, American Enterprise Institute.

[24] Wolfers, J. (2006): “Did Unilateral Divorce Laws Raise Divorce Rates? A Reconciliation and New Results,” American Economic Review, 96(5), 1802–1820.

[25] Zipperer, B. (2016): “Did the minimum wage or the Great Recession reduce low-wage employment? Comments on Clemens and Wither (2016),” Discussion paper.