1. Labor Market Regulation

2. Should the labor market be regulated? How? Why? Hours restrictions? Time and half overtime pay requirements? Safety and Working Conditions?

3. Labor Market Regulation and Market Failures Arguably, laws and regulation are best used to correct or prevent “market failures”. What do we mean by market failures? What can cause market failures?

4. Labor Market Regulation and Market Failures What market failure are the OSHA laws correcting? Top 10 Most Frequently Cited Standards What sort of market failures do policies like maximum hours restrictions and overtime pay correct?

5. Labor Market Regulation and Market Failures How about wage and benefit restrictions? Are they correcting a market failure? Are they an effective anti-poverty policy?

6. Minimum wage laws as Poverty Policy Federal minimum wage is currently $7.25/hr, but many states have their own higher minimums (up to $9.50) which take precedent. What is motivation for these laws? What are potential drawbacks?

7. Minimum wage laws as Poverty Policy Potential Drawbacks: Targeting Looking at 1992 change, Half of those affected were 16-24 (60% enrolled in school), Only 20% were families living below poverty line. Employment effects What is the theory behind employment effects of minimum wage? What are key aspects of this argument? What then are key underlying assumptions?

8. Minimum wage laws as Poverty Policy So where is the empirical evidence?

9. Minimum wage laws as Poverty Policy

11. Problem: Hard to isolate the effect of one thing given all the things that are going on. What would be nice is to be able to control for all of the other things that are changing and then see what just changing minimum wage would do to employment. How might one try to do this?

12. Minimum wage laws as Poverty Policy Card and Krueger Use a “natural experiment” empirical approach. On April 1, 1992, NJ increased min wage to $5.05 while other states (including neighboring PA) had fed min wage of $4.25. Card and Krueger collected employment data from fast food restaurants in NJ and Eastern PA in April and then again at same places in Nov and Dec. Compare changes in employment in NJ to changes in employment in PA. (Difference-in-Difference design) What is basic “identification” assumption?

13. Minimum wage laws as Poverty Policy

14. What are potential issues in interpreting Card and Krueger’s results?

15. Minimum wage laws as Poverty Policy Issues in interpreting Card and Krueger If we believed their findings, what theoretical story could explain them? The hungry teenager theory? Is it plausible?

16. Minimum wage laws as Poverty Policy Keil, Roberson, and Symmons (2009) Take Card and Krueger’s idea to a more aggregate level. Use state level data on youth employment/population ratio and state minimum wage rates and from 1976 – 2007. Look to see correlation between increases in minimum wage and youth employment/population ratio.

17. Minimum wage laws as Poverty Policy Keil, Robertson, and Symmons (2009) Blue line shows number of states with minimum wage above Federal minimum wage (higher one takes precedence).

18. Minimum wage laws as Poverty Policy Keil et al. paper

19. Minimum wage laws as Poverty Policy Lang In general, employment effects must be pretty modest. In 1992, about 7% of all workers earned minimum wage or below. The 1992 increase in min wage increased from $3.80 to $4.25 (a 12% increase). Estimates of labor demand curves suggest this should lead to a decrease in employment for low wage workers of about 6%. However, since less than 10% of workers are directly affected by such an increase, we would have to find an employment effect on the order of 0.6%, which would be hard to pick up given seasonal fluctuations and other state variation.

20. Minimum wage laws as Poverty Policy In general, studies show that min wage increases may lead to slight reductions in earnings inequality, but no studies have picked up measurable effects on poverty. This is likely due to: small offsetting employment effects, small wage increases associated with minimum wage increases, Many of the poor have only limited connections to labor force, due to low skills, health constraints, substance abuse problems, daycare issues, and transportation issues.

21. Other Attempts at Labor Market Regulation In 1991, the Americans with Disabilities Act was passed. Law not only made it illegal to discriminate against individuals with disabilities, it also required employers to make “all reasonable” accommodations” for disabled employees. This included ramps, elevators, and widened doors for wheelchairs, Braille keyboards and interfaces for the blind, and audio software for the deaf. Seems like a reasonable idea, what might be the concern?

22. Other Attempts at Labor Market Regulation

23. Labor Market Regulation There is a clear role for market regulation in the presence of “market failures” (most often asymmetric or imperfect information). But what about in cases where it isn’t quite clear whether or not there is a “market failure”. Then, my take is that trying to regulate the labor market is always subject to the “no free lunch” principle. Employer behavior is not static. They, more than anyone, react to changes in incentives. This may mitigate the benefit of the regulation to the people to whom it is trying to help. So does this mean that such regulations are always “bad”? Consider the article on “Guinea Pigging”. Is there an alternative way to view market regulations?