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Min wg panel model

Summary:
I’ve got a piece in the WaPo today that presents findings from the model described in more detail here. The model is a panel of the 50 states plus DC from 1979 to 2017 of wage, labor market, and minimum wage data. The results derive from fixed effects, panel regressions of the change in the log of the state real, 10th percentile wage on state unemployment and the change in the minimum wage variable. For this variable, I used the ratio of the state minimum wage in state i, year t, divided by the federal minimum wage in year t. Standard errors are clustered at the state level (results below). The article mostly focuses on the first two rows of results below: outcomes for the log change in the real 10th percentile wage. But I also include the same regression for the 90th percentile wage, as a

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I’ve got a piece in the WaPo today that presents findings from the model described in more detail here.

The model is a panel of the 50 states plus DC from 1979 to 2017 of wage, labor market, and minimum wage data. The results derive from fixed effects, panel regressions of the change in the log of the state real, 10th percentile wage on state unemployment and the change in the minimum wage variable. For this variable, I used the ratio of the state minimum wage in state i, year t, divided by the federal minimum wage in year t. Standard errors are clustered at the state level (results below).

The article mostly focuses on the first two rows of results below: outcomes for the log change in the real 10th percentile wage. But I also include the same regression for the 90th percentile wage, as a confirmation that the minimum wage variable is picking up variation in low wages. In fact, it is insignificant for the 90th percentile wage.

The WaPo article describes the results from a few simulations of the model over the past few years. To capture the impact of falling unemployment, all else equal, I held the unemployment rate at its 2015 level for each state in 2016-17, while the other variables took their actual values. I take simulated real wage levels and compared them to the path of actual wages.

The same procedure was followed for the change in the minimum wage ratio (state over federal) i.e., I did not allow it to go up in states that raised their minimum wages in 2015 or 2016. I then compared these simulated wages for states where the ratio rose to the actual wage trends for those states (which included any wage effects for the higher state minimum wage).

The full model for the wage results below had 1,938 observations and R-sq of 0.43. Restaurant employment data were only available for 21 states since 1990 (518 observations).

Wage data were derived by the Economic Policy Institute from CPS ORG files; state unemployment is from the BLS; state employment data were from the BLS CES survey; minimum wage data from Ben Zipperer (thanks to Ben for helpful comments, though any mistakes are mine).

Some key results follow (***=significant and <1% level):

Min wg panel model

Jared Bernstein
Jared Bernstein joined the Center on Budget and Policy Priorities in May 2011 as a Senior Fellow. From 2009 to 2011, Bernstein was the Chief Economist and Economic Adviser to Vice President Joe Biden, Executive Director of the White House Task Force on the Middle Class, and a member of President Obama’s economic team. Prior to joining the Obama administration, Bernstein was a senior economist and the director of the Living Standards Program at the Economic Policy Institute, and between 1995 and 1996, he held the post of Deputy Chief Economist at the U.S. Department of Labor.

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