Minimum wage up, fringe benefits down

Gordon Tullock used to make this claim, as have I on many occasions:

This paper explores the relationship between the minimum wage, the structure of employee compensation, and worker welfare. We advance a conceptual framework that describes the conditions under which a minimum wage increase will alter the provision of fringe benefits, alter employment outcomes, and either increase or decrease worker welfare. Using American Community Survey data from 2011-2016, we find robust evidence that state-level minimum wage changes decreased the likelihood that individuals report having employer-sponsored health insurance. Effects are largest among workers in very low-paying occupations, for whom coverage declines offset 9 percent of the wage gains associated with minimum wage hikes. We find evidence that both insurance coverage and wage effects exhibit spillovers into occupations moderately higher up the wage distribution. For these groups, reductions in coverage offset a more substantial share of the wage gains we estimate.

That is from a new NBER working paper by Jeffrey Clemens, Lisa B. Kahn, and Jonathan Meer.

Comments

'Using American Community Survey data from 2011-2016, we find robust evidence that state-level minimum wage changes decreased the likelihood that individuals report having employer-sponsored health insurance.'

What an interesting period for that comparison, considering that the The Patient Protection and Affordable Care Act was signed into law by President Barack Obama on March 23, 2010.

Wouldn't it just be easier to blame Obummer for that?

'for whom coverage declines offset 9 percent of the wage gains associated with minimum wage hikes.'

So, a minimum increase of one dollar means that only 91 cents actually reached the employee? Well, that clearly is a knock out blow to the idea of raising the minimum wage, then. Though since the paper is gated, there is no way to see whether that is a proper framing of the numbers involved.

I'd hope the author's controlled for that. The ACA is a national uniform law (with the exception of the medicaid expansion and a few other things that would be easy to take into account.)

Don't forget the reduction in the number of hours demanded at the higher price.

Interesting.

It pays to speak of non-wage job attributes, as some labor economists do, rather than "fringe benefits." Many significant attributes other than wage characterize the job, but many of those are not aptly termed "fringe benefits"—e.g., work demands, schedule flexibility, attention and sympathy, etc.

Just as a focus on the wage attribute eclipses fringe benefits, a focus on fringe benefits eclipses neither-wage-nor-fringe-benefit attributes.

There are more attributes than dreampt of in their philosophy. Saying non-wage job attributes expresses humility in the face of all possible adverse impacts on non-wage job attributes.

I believe the Dilbery guy wrote about "effective compensation" meaning not just pay but also the pens and printing paper you can steal.

This makes sense. Also the American health system began to be screwed up in World War Two when medical insurance became a way of getting around regulations designed to keep wages down.

The advantage for Washington, of course, is that stolen paper is not taxed. But extra income is.

The government, regulation and the minimum wage law are the problem. You cannot by the stroke of a pen and good intentions make a marginal employee doing a menial job worth more than what the market will pay.

Even if the offset is 100%, what is the long term effect of earning $13 vs. $15 an hour? People is happier with larger paychecks.

you people reeeally want this regulation to make sense, dont you

What does the term "coverage declines offset 9% of the wage gains" mean?

On holiday in Spain so I have to do stuff by memory. Certainly the ACA was supposed to address the health insurance issue. However, part time employees and those working at places where there are less than 50 employees do not have to be provided with employer paid for insurance. Certainly some of the data the authors were looking at was pre-ACA. Too bad that Tyler often cites gated papers; those of us with a modicum of expertise cannot really offer more than general commentary.

I would add that health insurance is likely the most valuable benefit for workers,

No, health insurance is the most valuable benefit for health care providers, just as unemployment insurance is the most valuable benefit for automobile finance companies, mortgage companies and landlords.

I guess You don't have hey insurance.

Young healthy workers can use very high deductable insurance. If they are young, feel well a doctor visit every few years is enough, statistically.

I know this to be true, as Obama kept saying it. He said Obamacare only works if healthy young people sign up. Most obamacare advocates make the claim. They study the statistics, there conclusion is the same as mine, full coverage for the young and healthy does not pay, individually.

"We advance a conceptual framework that describes the conditions under which..."

In year 2018 it's annoying that Harvard PhD's still write in such stuffy, pompous prose

Causation or correlation? I don't doubt that employers were dropping health insurance coverage during the period studied - they were dropping coverage before the period studied. And who do minimum wage workers work for? Roughly 40% of minimum wage workforce are employed at firms with fewer than 50 employees, and roughly half of the minimum wage workforce are employed at firms with less than 100 employees. That's according to the Employment Policies Institute, which opposes increases in the minimum wage. So increases in the minimum wage hit small firms? Not exactly. Historically, large firms paid a premium to workers, but the large firm premium is disappearing. Why? Economists have several explanations. One is the increase in outsourcing: outsourced jobs pay less than direct employment. Second is the shift in employment from manufacturing to retail and service, the latter jobs lower paid jobs. Third is the increased market concentration among employers, which means fewer employment opportunities and greater power of the employer to set a lower wage. The point of this comment is that we have experienced reduced employee benefits (especially health insurance) and flat wages since the often-celebrated 1980s. Moreover, looking forward, the repeal of the individual mandate will likely mean fewer healthy individuals will buy insurance, resulting in a sicker pool of those insured including those insured under employer provided plans, causing premiums to rise and employers to cut or eliminate the benefit. Welcome to the real world rather than the fictitious world of so many studies.

Contact workers get no benefits and have to convert their own health insurance. This makes a big difference for large companies that have short term projects. Also they can outsource to foreign countries pretty easily because of electronic communication.

"Third is the increased market concentration among employers, which means fewer employment opportunities and greater power of the employer to set a lower wage." Might there be a feedback loop here? Rising minimum wages presumably make it harder for start-up businesses to hire workers. The prospect of further increases will further discourage the entrepreneur, who might decide against starting the business. His established competitor can absorb the wage increase, but will keep non-wage compensation down. This will prompt the legislators to further increase the minimum wage, which will discourage potential entrepreneurs, etc.

Employment like real estate is local: in an increasing number of communities, the employment alternatives are limited: firms relocate to places that not only have laws opposing unions, but also have few large employers that could compete for labor. This is self-evident in the South. But my comment was not about the merits of the minimum wage (I'm not a fan of the minimum wage), but about the supposed trade-off between increases in the minimum wage and benefits including health insurance. Wages are flat and benefits are being dropped not because of increases in the minimum (wages have been flat and benefits have been dropped since the 1980s), but because of the shift in the the relative power of the employer and the employee.

" ... and that government of the people, by the people, for the people, shall not perish from the earth."

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