Following up on this, and this, I figured at this point I could do an easy scatterplot or two to see if I could see how much the business cycle affected the changes in the employment trends here. I figured one would expect to see a range of outcomes centered around a negative mean, with the deviation in the outcomes correlating to the effect of the business cycle - with worse outcomes during recessions. Usually the correlation isn't so clean in practice. But, here it looks surprisingly uniform. And the contraction in teen EPR also has a surprisingly regular relationship with the scale of the MW hike:
Since I have simplified this into just 7 separate observations, I can see how the scale of the trend change relates to both the scale of the minimum wage hike and to the change in real GDP.
The change in the Minimum Wage, as measured, is the change, from the level the month before the first hike to the level after the last hike in the series, in the ratio of the minimum wage to the average wage.
These two independent variables don't have a relationship with each other.
Below is the regression of Teen EPR against both of these variables. I was surprised to see the intercept so close to zero and such high correlations for both variables, together and separately.
Summary for Teen EPR:
MW/AW up by 10% ---> Teen EPR down by 10%
1 year RGDP up by 10% ----> Teen EPR up by 6%
Typical Episode: MW/AW up 9%, RGDP up 4% ----> Teen EPR down by 6.3%
ADDED: I decided to go ahead and make the same changes to the 7 observations for the total Employment-Population Ratio. The coefficients are smaller, as one would expect, but the correlations are higher. I suspect that this is partly because total EPR is just a cleaner, more stable data series.
Here are the individual correlations.
Below is the comparison of actual EPR changes during the 30 month periods of the 7 minimum wage episodes to the levels predicted by the regression coefficients.
Here is the data:
Emp trend change*30 months
|
MW/AW%ch
|
2 yr RGDP
|
|
1956 | -4.7% | 13.0% | 6.2% |
1961 | 1.0% | 7.5% | 8.8% |
1967 | -1.1% | 9.4% | 6.6% |
1974 | -3.9% | 10.0% | -2.0% |
1990 | -3.7% | 7.5% | 1.9% |
1996 | 0.7% | 5.8% | 8.7% |
2007 | -5.4% | 9.4% | 2.0% |
Summary for Aggregate EPR:
MW/AW up by 10% ---> EPR down by 5.6%
1 year RGDP up by 10% ----> EPR up by 3.9%
Typical Episode: MW/AW up 9%, RGDP up 4% ----> EPR down by 2.7%
PS. Here is the correlation between the two independent variables.
The RGDP with a -1yr lag is what I used in the regressions. But I noticed that when I removed 1956 (the blue dot at the top right), the correlation looked similar to the correlation between the change in MW and the concurrent change in RGDP (in red). There is a slight correlation - there is actually just under a 10% p-value on a one-tailed test.
But, if the issue with minimum wage job losses was just a matter of bad timing, then, on this correlation, the trendline would be flat, but would be lower than the average 2 year RGDP growth (which is about 6.3%). What we see instead are regression lines that start out at about the average 2 year RGDP growth rate and then decline steeply as the scale of the minimum wage hike increases. This suggests that the declining RGDP is a product of the MW hikes.
The regression for EPR becomes very strong when I use the concurrent RGDP. The MW variable doesn't improve the significance, but the concurrent RGDP is very likely to be signifying some employment loss from the minimum wage. While the variance in the regression between the two independent variables is large, the effect is also large, so that the expected difference in 2 year concurrent RGDP between the smallest MW hike and the largest is more than 8%.
An explanation for the anomaly (1997-2003)....
ReplyDeleteIronman, in the next post I compare the minimum wage hikes to the Federal Reserve Yield Curve recession indicator. Do you think the 1997-2003 state level hikes line up better with the pre-recession bump or with the recession?
ReplyDeletehttp://idiosyncraticwhisk.blogspot.com/2014/01/minimum-wage-bad-luck-policy.html