The Minimum Wage, Rent Control, and Vacancies or Who Searches?

In an interesting new paper Federal Reserve economists Marianna Kudlyak, Murat Tasci and Didem Tüzemen look at what happens to job vacancy postings when the minimum wage increases.

The vacancy data in our analysis come from the job openings data from the Conference Board as a part of its Help Wanted OnLine (HWOL) data series. HWOL provides monthly data on vacancies at detailed geographical (state, metropolitan statistical area, and county) and occupational (six-digit SOC and eight-digit O*Net) levels starting from May 2005. HWOL covers around 16,000 online job boards.

…Our identification strategy exploits the idea that different occupations can be differently impacted by minimum wage hikes due to differential mass of occupation-specific wage distributions concentrated around the prevailing minimum wage. We formalize this idea by analyzing wage distributions by occupation at the state level using micro data from the Current Population Survey (CPS). We identify occupations with large shares of employed workers at or near the state-level effective minimum wage and we refer to these occupations as “at-risk occupations.” We then estimate vacancy growth in at-risk occupations relative to vacancy growth in other occupations around the time when minimum wage increase takes place in the state, and relative to growth in vacancies in at-risk occupations at the national level.

…We find a statistically significant and economically sizeable negative effect of the minimum wage increase on vacancies. Specifically, a 10 percent increase in the level of the effective minimum wage reduces the stock of vacancies in at-risk occupations by 2.4 percent and reduces the flow of vacancies in at-risk occupations by about 2.2 percent.

…We find that firms cut vacancies up to three quarters in advance of the actual minimum wage increase. This finding is consistent with the firms’ desire to cut employment and vacancies being a forward-looking tool to achieve it. This finding is also consistent with a typical announcement effect of a policy change. Formally testing for the parallel trends assumption in our triple-difference identification, we find that at-risk and not-at-risk occupations do not have statistically significant differences in their vacancy trends prior to the typical announcement period. But the negative effect persists even four quarters after the minimum wage increase. The cumulative negative effect of a 10 percent increase in the minimum wage on total vacancies is as large as 4.5 percent a year later.

…We find that vacancies in occupations that typically employ workers with lower educational attainment (high school or less) are affected more negatively than vacancies in other occupations. The negative effect on vacancy posting is exacerbated in counties with higher poverty rates, which highlights another trade-off that policymakers might want to take into account.

This reminded me of a similar paper on rent controls (ungated) by Are Oust that Tyler and I mention in the forthcoming edition of Modern Principles of Economics.

Are Oust studied rent controls in Oslo, Norway and found that during the rent control era it was common for landlords to require their tenants to be of a certain gender, age, occupation and even religion (which would be illegal in the United States). Landlords would also find ways to charge extra by asking renters for extra services such as baby-sitting, garden work or snow-clearing. When rent control was eliminated, however, the number of apartments increased and landlords no longer advertised these kinds of requirements. Perhaps most telling, in the rent-control era it was common for renters to advertise “Apartment Wanted” but when rent controls were lifted it became much more common for landlords to advertise “Apartments for Rent!”

In other words, in a free market firms search for employees and landlords search for renters but under the minimum wage and rent control, workers must search for jobs and renters must search for apartments to a much greater extent.

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