Danish data on the minimum wage: The hourly wage jumps up by 40pct at the discontinuity of minimum wage rules; employment falls by 33pct and total input of hours decreases by 45pct

Do Lower Minimum Wages for Young Workers Raise Their Employment? Evidence From a Danish Discontinuity. Claus Thustrup Kreiner,  Daniel Reck and  Peer Ebbesen Skov. Review of Economics and Statistics, March 04, 2019. https://doi.org/10.1162/rest_a_00825


Abstract : We estimate the impact of youth minimum wages on youth employment by exploiting a large discontinuity in Danish minimum wage rules at age 18, using monthly payroll records for the Danish population. The hourly wage jumps up by 40 percent at the discontinuity. Employment falls by 33 percent and total input of hours decreases by 45 percent, leaving the aggregate wage payment almost unchanged. We show theoretically how the discontinuity may be exploited to evaluate policy changes. The relevant elasticity for evaluating the effect on youth employment of changes in their minimum wage is in the range 0.6-1.1.

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Minimumwages,setbylaworbycollectiveagreement,existin3/4ofOECDcountries(OECD,2015).IntheUnitedStates,minimumwageincreaseshavebeenhighonthepolicyagendainrecentyears,motivatedinpartbymanystudies ndingsmallemploymente ectsofminimumwagehikes.Somecities(e.g.LA,Seattle)andthestateofCaliforniahaverecentlylegislatedaminimumwagerateof$15,amuchhigherratethanthecurrentFederalminimumof$7.25perhour.Ashigherminimumwagesbecomecommon,policy-makersareconfrontedwithasecondquestion:shouldahighminimumwageapplytoeveryone?Inparticular,shoulditapplytoyoungerworkers?Youngworkersarelow-skilledandenterthelabormarketwithoutworkexperience,whichmakethempotentiallyvulnerabletohighminimumwages.ManyUSstatesandcities,includingCalifornia,Minnesota,SouthDakota,KansasCityandDesMoines,whichhaverecentlyincreasedtheirminimumwage,havedebated,andattimeslegislatedorplacedontheballot,anexceptionforyoungerworkers(Kreiner,ReckandSkov,2018).Similarly,manyEuropeancountrieswithhighminimumwageshavelowerminimumwagesforyoungerworkers(OECD,2015).Themainquestionweseektoansweris:Holdingtheadultminimumwage xedatagivenlevel,whatisthee ectofachangeintheminimumwageapplyingtoyoungworkersontheiremployment?ExistingUSevidenceandmostotherevidencecannotanswerthisquestionasitstudieschangesinaglobalminimumwageratherthanayouth-speci cminimumwage.Forexample,theelasticityofyouthemploymentwithrespecttotheminimumwageof0.075reportedbytheUSCongressionalBudgetO ceisbasedonchangesinaglobalminimumwage(CongressionalBudgetO ce,2014).OurempiricalevidenceexploitsalargediscontinuityinDanishminimumwagerulesoccurringwhenworkersreachage18.TheDanishcontextisidealforourpurpose.Denmarkhaslargechangesinminimumwagerateswhenworkersturn18(andnochangeatanyotherages)andahighadultminimumwagecomparabletothe$15levelinplaceinCaliforniaandunderconsiderationmoregenerallyintheUS.1Furthermore,wecanstudythee ectoftheagediscontinuityusinghigh-qualitymonthlydataonwages,employment,andhoursworkedfortheentireDanishworkforce.Ourmain ndingsarecontainedinFigure1,whichshowsthattheagediscontinuityinminimumwageshasalargeimpactonemploymentaroundage18.Weexplainthedetailsbehindtheconstructionofthedataset,measurementissues,andthesourceofidentifyingvariationbelow.Figure1aplotsaveragehourlywages,imputedbydividingreportedmonthlywagesbyreportedhoursworkedforeachindividual,asafunctionofage(measuredinmonths),fortwoyearsbeforeandaftertheir18thbirthday.TheaveragehourlywageratejumpsbyDKK46,orabout$7,correspondingtoa40percentchangeinthewagelevelatage18computedusingthemidpointmethod.Figure1bplotstheshareofindividualswhoareemployedbymonthlyage.Weobservea15percentage-pointdecreaseinemploymentatage18,whichcorrespondstoa33percentdecreaseinthenumberofemployedindividuals.Forcomparison,notethatthewageandemploymentratesdevelopsmoothlywhenindividualsturn17and19yearsold,andthatittakestwoyearsbeforetheemploymentrateisbackatthelevelitattainsjustbeforethejumpdownwardsatage18.Subsequentanalysesrevealthatthedropinemploymentwhenworkersturn18re ectsadiscretechangeinjoblosswithoutanydiscretechangeinhiring(wedoobserveasmallanticipatoryslow-downinhiringasworkersapproachage18).Asimpleestimateoftheemploymentelasticity(theextensivemargin)withrespecttothewagechangeisobtainedbydividingtheestimatesofthepercentagechangesinemploymentandhourlywage.Thisgivesanelasticityaround-0.8.Whenlookingattotalhoursworked(theintensiveandextensivemargin),we ndanelasticityof-1.1,indicatingthatmostoftheresponseoccursalongtheextensivemargin.Recallthataunitelasticitywouldimplythattheaveragewagepaymentofallindividuals,includingbothemployedandnon-employedworkers,shouldstayunchangedwhenthewagerateisraised,becauseitse ectontheaveragewagepaymentisfullyo setbyadecreaseinemployment.Consistentwiththisreasoning,we ndnearlynoe ectonaverageearnings.Thisprovidesalternativeevidenceofatotalhoursworkedelasticityaround-1,notdependingonthemeasurementofhourlywages.Weuseeconomictheorytomotivateourempiricalspeci cationandtoshowthat,un-derreasonableassumptions,theestimatedemploymentelasticitymaybeusedtocalculatethee ectonyouthemploymentofachangeintheminimumwagespeci callyforyoungerworkers.First,weprovideasimplemodelinwhichtheelasticityweestimateusingtheagediscontinuityisexactlythesameastheelasticityneededforthedesiredcounterfactualpolicyanalysis.Inthemodel,workershaveexogenous,heterogeneousproductivitiesandarehirediftheirproductivityexceedstheminimumwage(correspondingtoahorizontaldemandforlabormeasuredine ectiveunits).Inthissimplesetting,cross-workere ectsarezero.Accordingtothisbasicmodel,wemaycomputetheconsequencesofincreasingtheminimumwageforyoungworkers(thoseunder18)uptothehigherlevelapplyingtoadultsbyusingourestimatedelasticity.Thiscalculationgivesa15percentagepointdropinyouthemployment,correspondingto33percentofinitialemployment.Amodelwithdownwardslopinglabordemandforlow-skilledworkwouldinsteadsug-gestthattherearecross-workere ects,implyingthatahigheryouthminimumwagemayincreaselow-skilledadultemployment.Suchcross-workere ectsposeapotentialthreattotheidenti cationstrategy.However,weshowthatonecanobtainalowerboundfortheyouthemploymentelasticitybyconsideringtheextremecaseofa xeddemandforlow-skilledwork(implyingthattheemploymente ectfromthediscontinuityanalysisisentirelydrivenbycross-workere ects).Thelowerboundmaybecomputedfromourestimatedelasticityandthewageshareofyoungerworkersinthelow-skilledlabormarket.Wethuscomputethewageshareoflow-skilledworkersunderage18,usingvariousde nitionsofthelow-skilledworkersthatareperfectlysubstitutableforworkersunderage18.Inthemostex-tremeofthesecalculations,inwhichonlyworkersaged18-19aredeemedtobe low-skilled substitutesforworkersunderage18,thelowerboundoftheyouthemploymentelasticitybecomes0.6.Increasingtheminimumwageforyoungworkersuptothelevelofadultwork-erswouldthendecreaseemploymentbyatleast11percentagepoints,or25percentofyouthemployment,whichisstillasubstantialemploymente ect.Wealsoembedoursimplemodelinanequilibriumsearchframeworkincorporatingdy-namicsforaging.Inaccordancewiththeempiricalevidence,themodelpredictsthatthedropinemploymentatage18re ectsadiscretechangeinjobloss,ratherthanadiscretechangeinhiring.Themodelalsopredictsspillovere ectsofanincreaseintheyouthminimumwageonadultemployment,butinthiscasethesignofthespillovere ectisambiguous.Inanycase,ourelasticityestimateisagainagoodapproximationofthee ectonyouthemploymentifyoungworkersconstitutealowshareoftotallow-skilledemployment."Additionalanalysisdemonstratesthatourinterpretationoftheempiricalresultsiscor-rectandstudiesheterogeneityinemploymente ectsacrossworkers.Mostimportantly,wedemonstratethatotherpoliciesthatchangewhenworkersturn18,suchastheeligibilityforDanishsocialwelfareprograms,arenotdrivingourresults.Wealsoshowthatthesizeoftheemploymentelasticityisonlyslightlylargerforworkersoflowerability,asproxiedbyschoolGPAin9thgradeortheincomeofparents.Finally,weprovidesuggestiveevidencethatjoblosseshavepersistente ectsonworkers.Twoyearsaftertheworkers'18thbirthdays,theemploymentrateisabout15percentagepointslowerforworkersloosingtheirjobatage18relativetoworkerswhokepttheirjob.Ourpapercontributestothesizableliteratureonminimumwagesandemployment,asreviewedinCardandKrueger(2015)andNeumarkandWascher(2008).Mostofthislit-eraturestudiesemploymente ectsofglobalminimumwagehikes,whileourfocusisonthee ectsofage-speci cminimumwages,whereevidenceislimited.NeumarkandWascher(2004)showthatcountrieswithhighminimumwagesalsotendtohavehighyouthunem-ployment,but,consistentwithourresults,thiscorrelationisweakerwhencountrieshavealowerminimumwageforyoungworkers.Onenewstudy,Kabátek(2015),analyzesanagediscontinuity,inthiscaseseveralsmallagediscontinuitiesinDutchminimumwages.Theobservedchangesinwagesandemploymentaroundworkers'birthdaysarethereforemuchsmallerandmoredi usethaninourcontext.Theimpliedemploymentelasticityisslightlysmallerthanours.Combiningonelargediscontinuitywiththoroughtheoreticalrea-soningandrichdataallowsustointerpretoure ectsinmoredetailandtoperformcrediblecounterfactualpolicyexercises.Ourresultsmaymakesomereadersconcernedabouttheimpactofglobalincreasesintheminimumwageonemployment,asubjectofintenseongoingdebate.SeveralDDstudies,mostfamouslyCardandKrueger(1994), ndlittletonoimpactofglobalminimumwagehikesonemployment.2Ourestimatesofthee ectofanincreaseinminimumwagesonemploymentaremuchlargerthanthosetypicallyestimatedforglobalminimumwagehikesusingDDdesigns.Therearethreefactorsthatcouldexplainthisdi erence.First,estimatesinexistingDDstudiesmightbeattenuatedbyshort-runfrictions(Baker,BenjaminandStanger,1999;Sorkin,2015;MeerandWest,2015;Aaronson,FrenchandSorkin,2017),whicharenotrelevantinoursetting.Second,ourstudyisbasedonahighminimumwagelevelcomparedtomostpreviousstudies.Minimumwagesmaynotbebindingatlowlevelsand,ifbinding,theymayincreaseemploymentduetolabormarketimperfections(Manning,2003).Third,ourresultsmightbedrivenbycross-agesubstitutionratherthanpurelyadisemploymente ectoftheminimumwage.The rsttwoofthesefactorssuggestthatourresultsaddressshortcomingsoftheexistingliteratureonglobalminimumwagehikes.However,thethirdisanimportantlimitationofourstudy'sabilitytospeaktothisdebate.Cross-agesubstitutionwouldimplythatweestimatehigheremploymentelasticityinoursettingthanwouldbeseenwithaglobalminimumwagechange.Theextenttowhichthisparticularfactordrivesourlargeestimatedeterminestheextenttowhichreadersshouldupdatetheirbeliefsabouttheemploymente ectsofglobalminimumwagehikes.Onthewhole,therefore,itisdi culttoimaginethatour ndingswillmakereaderslessconcernedaboutemploymente ectsofhighminimumwages,butwhetherandtowhatextenttheyshouldbemoreconcerneddependsonwhattheybelieveaboutthemechanismsbehindourresults.Ourworkalsocontributestothetheoreticalliteratureonthee ectsofminimumwages.MuchoftheliteratureattemptstorationalizeearlyDDstudies ndingsmallorevenpositiveemploymente ectsusingmodelswithmonopsonypowerorotherlabormarketimperfections(RebitzerandTaylor,1995;Manning,2003;Flinn,2006).Our ndingsoflarge,negativeemploymente ectsaroundage-basedminimumwagesalignbetterwithbindingminimumwagesinacompetitivelabormarketmodel.Theminimumwageliteratureoftenassumesthatworkers/jobsarehomogenouswithadownwardslopinglabordemandduetoade-creasingmarginalproductoflabor.Thisisincontrasttotheoptimalincometaxliteraturenormallyassumingheterogeneousproductivities(Mirrlees,1971).Ourexplanationsoftheempirical ndingsarebasedontheorywithheterogeneousproductivities,similartootherrecentminimumwageresearch(ClemensandWither,2016;ClemensandStrain,2017).Thefactthatsomeindividualslosetheirjobwhentheyturn18,whileotherskeeptheirjob,stronglysuggeststhatheterogeneousproductivityisanimportantaspectofthelow-skilledlabormarket.

Suppressing thoughts often leads to a “rebound” effect; unpleasant thoughts were more prone to rebound in dreams than pleasant ones; may be support for an emotion‐processing theory of dream function

The effects of dream rebound: evidence for emotion‐processing theories of dreaming. Josie Malinowski, Michelle Carr, Christopher Edwards , Anya Ingarfill, , Alexandra Pinto. Journal of Sleep Research, March 12 2019. https://doi.org/10.1111/jsr.12827

Abstract: Suppressing thoughts often leads to a “rebound” effect, both in waking cognition (thoughts) and in sleep cognition (dreams). Rebound may be influenced by the valence of the suppressed thought, but there is currently no research on the effects of valence on dream rebound. Further, the effects of dream rebound on subsequent emotional response to a suppressed thought have not been studied before. The present experiment aimed to investigate whether emotional valence of a suppressed thought affects dream rebound, and whether dream rebound subsequently influences subjective emotional response to the suppressed thought. Participants (N = 77) were randomly assigned to a pleasant or unpleasant thought suppression condition, suppressed their target thought for 5 min pre‐sleep every evening, reported the extent to which they successfully suppressed the thought, and reported their dreams every morning for 7 days. It was found that unpleasant thoughts were more prone to dream rebound than pleasant thoughts. There was no effect of valence on the success or failure of suppression during wakefulness. Dream rebound and successful suppression were each found to have beneficial effects for subjective emotional response to both pleasant and unpleasant thoughts. The results may lend support for an emotion‐processing theory of dream function.