The Higher Wages Tax Credit*
In the face of continued low employment, stagnant wages, persistent poverty, and rising inequality, minimum wage increases will likely continue to hold appeal as a policy response. In this paper, I propose a Higher Wages Tax Credit (HWTC) to partially offset the costs imposed by minimum wage increases on firms that employ low-skilled labor. Following a minimum wage increase, the HWTC would provide a tax credit of 50% of the difference between the prior minimum wage and the new minimum wage, for each hour of labor employed; the credit would phase out at wages higher than the minimum wage, and as wage inflation erodes the real cost of higher nominal minimum wages. The HWTC would reduce the incentive for employers to substitute away from low-skilled workers in the face of minimum wage increases, thus mitigating the potential adverse effects of minimum wage increases while simultaneously preserving and possibly enhancing some of the benefits of minimum wage hikes. The credit is also intended to infuse the debate around increasing the minimum wage with a more realistic accounting of the costs and benefits of such a policy by partially transforming minimum wage increases into a more conventional redistributive policy.
*This proposal will be forthcoming in an Aspen Economic Strategy Group volume.
Longer-Run Effects of Anti-Poverty Policies on Disadvantaged Neighborhoods
David Neumark, Brian Asquith, and Brittany Bass
June 20, 2018
We estimate the longer-run effects of minimum wages, the Earned Income Tax Credit, and welfare (and welfare reform) on key economic indicators of economic self-sufficiency in disadvantaged neighborhoods. We find some evidence that higher minimum wages lead, in the longer run, to increases in poverty and the share of families on public assistance. In contrast, we find some evidence that the EITC has positive longer-run employment effects. We do not generally find significant evidence of longer-run effects of the EITC on poverty or public assistance in our standard difference-in-difference-in-differences specification. But in some specifications, especially when we allow the national changes in the EITC to influence the estimates, we find evidence that the more generous EITC reduced poverty and the share on public assistance. Finally, we find evidence that more generous welfare benefits lead to higher poverty and public assistance in the longer-run.
War! What Is It Good For? The Effects of Combat Service on Economic Transitions of Veterans
Joseph J. Sabia and William Skimmyhorn
May 1, 2018
There are 18.5 million veterans in the United States, with unemployment and disability rates highest for recent veteran cohorts who served in Iraq and Afghanistan. At the same time, the U.S. Army has undergone its most substantial drawdown since the end of the Cold War. Using new Army administrative panel data, this study is the first to estimate the causal impact of post-9/11 combat service on veterans’ economic well-being. We exploit a natural experiment in overseas deployment assignments and find that combat deployments substantially increase separating soldiers’ reliance on Veterans’ Disability Compensation (VDC) benefits for Post-Traumatic Stress Disorder (PTSD) and Traumatic Brain Injury (TBI), as well as Unemployment Compensation for Ex-Servicemember (UCX) benefits. In addition, we find that combat deployments of over 18 months are associated with a 20 to 35 percent reduction in educational attainment during enlistment and a 4 to 10 percent decline in the probability of obtaining a bachelor’s degree following separation. These adverse human capital effects are exacerbated by unit-level combat exposure.
The Long-Run Effects of the Earned Income Tax Credit on Women's Earnings
David Neumark and Peter Shirley
December 18, 2017
We use longitudinal data on marriage and children from the Panel Study of Income Dynamics to characterize women’s exposure to the federal and state Earned Income Tax Credit (EITC) during their first two decades of adulthood. We then use measures of this exposure to estimate the long-run effects of the EITC on women’s earnings as mature adults. We find some evidence indicating that exposure to a more generous EITC when women were unmarried and had young (pre-school) children leads to higher earnings and hours, and perhaps wages, in the longer run. We also find some evidence that exposure to a more generous EITC when women had young children but were married leads to lower earnings and hours in the longer run. These longer-run effects are to some extent consistent with what we would expect if the short-run effects of the EITC on employment that are documented in other work, and predicted by theory, are reflected in effects of the EITC on cumulative labor market experience (and other consequences of labor market attachment) that influence earnings.
Government Programs Can Improve Local Labor Markets, But Do They? A Re-Analyses of Ham, Swenson, Imrohoroğlu, and Song (2011)
David Neumark and Timothy Young
November 30, 2017
Research on the effects of enterprise zones – especially state programs – has generally failed to find evidence of beneficial effects such job growth or poverty reduction. In contrast, Ham, Swenson, Imrohoroğlu, and Song (2011, hereafter HSIS) present evidence that state and federal enterprise zones (EZs) established in the 1990s substantially reduced poverty. However, their estimates of the effects of EZs in reducing poverty are badly overstated for two reasons. First, HSIS have a substantial error in their data on poverty rates by Census tract, which accounts for most of the estimated impact of state EZs that they find. Second, their estimates of the effects of federal Empowerment Zones (EMPZs) and Enterprise Communities (ENTCs) appear to be strongly influenced by selection of areas that experienced negative shocks. An estimator based on comparing federally designated zones to more-comparable areas that applied for and were rejected as zones, or became zones in the future, yields much smaller estimates than those in HSIS. And the large poverty-reduction effects of ENTCs that HSIS found are largely spurious – not surprisingly, given that ENTCs received meager benefits and had no hiring credits.
The Minimum Wage and the Great Recession: A Response to Zipperer and Recapitulation of the Evidence
June 14, 2017
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.
Pitfalls in the Development of Falsification Tests: An Illustration from the Recent Minimum Wage Literature
June 14, 2017
This paper examines a “falsiﬁcation test” from the recent minimum wage literature. The analysis illustrates several pitfalls associated with developing and interpreting such exercises, which are increasingly common in applied empirical work. Clemens and Wither (2014) present evidence that minimum wage increases contributed to the magnitude of employment declines among low-skilled groups during the Great Recession. Zipperer (2016) presents regressions that he interprets as falsiﬁcation tests for Clemens and Wither’s baseline regression. He interprets his results as evidence that Clemens and Wither’s estimates are biased. In this paper, I demonstrate that Zipperer’s falsiﬁcation tests are uninformative for their intended purpose. The properties of clustered robust standard errors do not carry over from Clemens and Wither’s baseline speciﬁcation (27 treatment states drawn from 50) to Zipperer’s falsiﬁcation tests (3 or 5 “placebo treatment” states drawn from 23). Conﬁdence intervals calculated using a setting-appropriate permutation test extend well beyond the tests’ point estimates. Further, I show that the sub-samples to which Zipperer’s procedure assigns “placebo treatment status” were disproportionately affected by severe housing crises. His test’s point estimates are highly sensitive to the exclusion of the most extreme housing crisis experiences from the sample. An inspection of data on the housing market, prime aged employment, overall unemployment rates, and aggregate income per capita reveals the test’s premise that regional neighbors form reasonable counterfactuals to be incorrect in this setting.
Additional Evidence and Replication Code for Analyzing the Effects of Minimum Wage Increases Enacted During the Great Recession
Jeffrey Clemens and Michael Wither
June 14, 2017
In previous work (Clemens and Wither, 2014), we reported evidence that minimum wage increases contributed to declines in low-skilled individuals’ employment during the Great Recession. Because this work has generated both interest and disagreement, we use the current paper to present the code underlying our baseline estimates and to present supplemental results. Our supplemental analysis focuses on choices that arise when processing wage and earnings data from the Survey of Income and Program Participation to isolate samples of “low-skilled” individuals. We further assess the relevance of several alternative approaches to sample selection. We show that these data processing and sample selection margins have little effect on the qualitative implications of our estimates. We present additional evidence that minimum wage increases had a negative effect on employment entry among individuals who were unemployed throughout our baseline period.
Working 9 to 5? Unionization and Work Variability, 2004-2013
Ryan Finnigan and Jo Mhairi Hale
January 8, 2017
Millions of workers in the United States experience irregular and unpredictable weekly
working hours, particularly following the Great Recession. This work variability brings
greater economic insecurity and work-life conflict, particularly for low-wage workers.
In the absence of strong and widespread policies regulating ‘precarious work,’ labor
unions may significantly limit work variability. However, any benefits with union
membership could depend crucially on union density, which varies widely between states.
This paper analyzes the relationship between unionization and two measures of work
variability among hourly workers using data from the 2004 and 2008 panels of the Survey
of Income and Program Participation. The results show union members were significantly
less likely to report a varying number of hours from week to week, but only in states
with relatively high unionization rates. In contrast, union members were more likely
to report irregular schedules, but not in states with the highest unionization rates.
This paper finds that the monthly earnings penalty for work variability is significantly
weaker among union members than non-members. Altogether, the paper’s results demonstrate
some of the continued benefits of unionization for workers, and some of its limitations.
David Neumark and Katherine E. Williams
November 29, 2016
In recent years, many states and some local governments implemented or expanded their own, supplemental Earned Income Tax Credit (EITCs). The expansion of state EITCs may have stemmed in large part from wanting to provide a more generous program than the federal program, because state EITCs increase transfer payments to the low-income recipients who qualify. However, state and local governments can also benefit from maximizing participation of their constituents in the federal EITC, and there are several reasons why state or local EITCs could increase participation in the federal EITC program. We find evidence that state EITCs increase federal EITC program participation. The effects are qualitatively consistent with what we would expect given theoretical predictions of the effects of an increase in state EITC generosity on labor supply.
November 27, 2016
The debate over school based sex education in the United States is centered on two major questions: do schools have a responsibility to teach students about issues related to sex, and if schools do teach sex education, what type of information should be presented? In the mid-1980s, once it was recognized that AIDS could be spread via sexual intercourse, Surgeon General Everett Koop called for increased sex education in schools beginning as early as third grade. Using data from multiple sources, including the Youth Risk Behavioral Surveys, National Vital Statistics, and the CDC’s Wonder statistics on STDs, this study presents the first examination of the effect of state-level sex education mandates on teenage sexual behavior, STDs, and birth rates.
October 27, 2016
This paper uses marijuana decriminalization laws, passed in 21 states over the last 40 years, to analyze the differences in earnings and employment that result from being arrested. A differences-in-differences model is used to exploit the state-by-year variation in arrests resulting from marijuana decriminalization laws. Data from the FBI’s Uniform Crime Reporting statistics and the Current Population Survey allow for age, gender and race specific estimates, which is critical considering the heterogeneity in rates of arrests across these delineations. Labor market outcomes in the CPS allow for an analysis of whether decriminalization laws affect extensive and intensive margins. Decreased penalties for marijuana possession are positively correlated with the probability of employment, although the results are imprecise. Additionally, there are non-trivial increases in weekly earnings for individuals living in states with decreased penalties, with the effects being greatest for black adults. This result is consistent with existing literature that suggests black adults, especially men, stand to benefit the most from removing these penalties.