Employment Changes per typical episode
Total Employment, expressed as 6 month relative change |
Employment Rate, expressed as 6 month relative change |
For total employment, in non-MW periods (Group 1), about 70% of net changes in employment are transfers with unemployment (.13/.18). About 30% of net changes in employment are transfers into and out of the labor force. After initial MW hikes, about 60% of net changes in employment are transfers with unemployment (.28/.46), so, on net, 40% of the job losers leave the labor force instead of appearing as unemployed. After subsequent hikes (Group 3), there is a slight increase, on average, in employment (.06% per 6 months) and a slightly larger increase in the Employment Rate (.08% per 6 months), suggesting that workers are still leaving the labor force, even as the Employment Rate is recovering.
The difference in age groups are interesting. As I have found in the previous posts, there appears to be a strong substitution effect between 16-19 year olds and 20-24 year olds. When MW increases, some of the damage is mitigated in the 20-24 age group as employers trade up from lower-wage teens, so 20-24 year olds have unusually good employment trends during MW periods and poor trends in non-MW periods. We see the same phenomenon in this comparison. After the initial MW hike, all age groups show less of a drop in the Employment Rate (ER) than they do in total Employment, suggesting a drop in Labor Force Participation. But, 20-24 year olds have a higher drop in the ER, suggesting that even though employment is dropping for all age groups during these periods, some 20-24 year olds are being drawn into the labor force.
After follow-up MW hikes, this phenomenon expands to all of the 20-44 year old groups. They experience some employment increases during these periods, but only some of these increases are reflected in the ER, suggesting an inflow into the labor force. Some of this would be catch up growth. For 16-19 year olds, total employment continues to fall, but the ER improves, on average, suggesting that for the youngest age group, an exodus from the labor force continues through the entire series of rate hikes.
Employment Changes compared to the size of the MW increase
This comparison suggests that when the size of the MW hike is factored in, less than 40% of the lost employment shows up in a reduced ER. (A slope of -.039 compared to -.104.)
This is especially pronounced in the youngest age groups. The comparison of 16-24 year olds suggests that after an initial transfer from employed to unemployed, nearly 90% of subsequent lost employment among young adults, due to steeper MW hikes transfers, leads to an exit out of the labor force.
The other age groups exhibit the same pattern - an intercept near the origin with a downward slope - but the difference between the total employment slopes and the ER slopes are less extreme than they are in the 16-24 age group.
Employment Forecasts from Lagged MW/AW changes
Because the loss of employment from MW hikes is more weighted to labor force exits, the forecast of MW effects over the period of 2007 - 2011 is much stronger when stated in terms of total employment than it is when stated in terms of Employment Rate (which is the corollary to the Unemployment Rate).
Whereas the forecast from MW hikes explained 4.24% out of the 8.23% drop in total employment from trend, the forecast of the Employment Rate only forecast 1.08% out of 4.05% of the drop in the ER.
In the next post, I will look at how the minimum wage might have affected the labor force participation and unemployment rates in the recent recession. (But, first a digression on LFP.)
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