CURRENT RESEARCH

Passing through the system? Menu adjustment in response to the minimum wage (with Michael R. Strain)

This paper examines how the prices of individual menu items at stores belonging to a single fast food chain respond to a change in the minimum wage. Unlike in previous studies, this approach controls for changes in the quality and size of the items in response to the minimum wage. Using weekly data, we compare the change in prices at stores in New Jersey after that state raised its minimum wage by $1.15 in July 2019 and another $1 in January 2020 with the change in prices at stores in Pennsylvania over the same period. The results suggest that the elasticity of price with respect to minimum wage (the "pass-through" elasticity) is around 0.05. Consistent with theory, items that are relatively more labour intensive in production - as measured by the number of steps required to produce them - and which have lower elasticities of demand - as reflected by not being sold only at breakfast-time - exhibit larger pass-through elasticities.

How the minimum wage affects workplace training

Previous studies have found mixed evidence regarding the effects of the minimum wages on training levels. This paper exploits a discontinuity in the minimum wage received by apprentices in the United Kingdom. Workers aged 19-20 receive a substantial increase in the minimum wage after one year on an apprenticeship, whereas workers aged under 19 do not experience a change in minimum wage at this point. Using data from the Apprenticeship Pay Survey, regression discontinuity design estimates suggest that the increase in the minimum wage has no overall effect on training among 19-20 year-olds. However, among firms that are compliant with the minimum wage legislation, the minimum wage reduces training by 11-23%. Since relatively few employers pay exactly the minimum wage, this implies a large elasticity of training with respect to the wage. Additional data from the Apprenticeship Evaluation Survey reveals that the overall effect of a 1% wage increase, including its effect on training, is a 0.1% reduction in a person's self-reported career prospects and a near-zero effect on his/her satisfaction with the apprenticeship.

Productivity over the life cycle

Do people devote more effort to their jobs at times when that effort is most rewarded? All workers have some degree of control over their productivity and therefore might be expected to optimally allocate this over the life cycle, in response to anticipated changes in the rewards for performance. Major league baseball provides an ideal setting in which to test whether this occurs, because the nature of the salary bargaining system means that the rate at which performance is rewarded increases suddenly and substantially at predetermined points in a player's career. Using annual data for 2005-2010, players are found to perform better during seasons when they know pay is most sensitive to performance. In addition, accumulated forecast errors in lifetime income are found to have a negative effect on performance, consistent with expectations.

Female labor supply and marital instability

Married women work longer hours when they face higher probabilities of divorce. However, the reasons for this are unclear. This paper presents a simple model of labor supply among married women in the face of marital instability. This predicts that a woman's labor supply response to a given change in the probability of divorce is determined by her discount factor and the degree to which her wage is affected by past hours of work. Data from the National Longitudinal Survey of Youth 1979 are then used to test these predictions. Married women are found to work longer hours when they face a high probability of divorce in the following year. Consistent with theory, the magnitude of this response is found to be largest among women with high returns to work hours. However, a woman's discount factor is not found to have a significant effect on her labor supply responsiveness in most specifications. Similar relationships are found when a woman's happiness with her marriage is used as a proxy for divorce risk.

Spillovers and substitutability in production (with Alex Bryson)

Can the existence of positive productivity spillovers between co-workers be explained by the presence of complementarities in a firm's production function? A simple theory demonstrates that this is possible when workers perform their tasks sequentially, but also that negative spillovers may arise when workers can raise overall team output unilaterally. Play-by-play data from major league baseball are used to test whether such spillovers exist between hitters over the course of a game, exploiting the fact that hitters perform their tasks sequentially. The results indicate that the overall spillovers between teammates are positive but small. However, these cannot be explained by the incentives inherent in the team's production function, which are found to have a negative effect on performance. Consistent with theory, the payment of higher base salaries and individual performance bonuses is found to weaken the responsiveness of players to the pay-offs from their performance.

Labor supply and education within households (with Joanna Clifton-Sprigg)

Why are married women's work hours related to their husbands' education levels and what do patterns in this relationship tell us about labor supply decisions within households? Three hypotheses are offered to explain why a woman's work hours might be related to her husband's education, even controlling for his wage rate. Data for a single cohort of women suggest that women's work hours are positively related to spousal education at the time of marriage but also fall more rapidly over time after marriage among those with the most educated husbands. Repeated cross-sectional data indicate that the latter effect appears to have increased since 2000. Overall, the results provide evidence consistent with both marital sorting on the basis of work preferences and a causal effect of husbands' long-run earnings on women's labor supply. Little support is found for the argument that spousal education measures non-market productivity.