Subminimum Wage Research Articles

Unintended Consequences? Undocumented, Working Poor Families and the Refundable Child Tax Credit

Immigrants toil in sweatshops for torturously long days at sub-minimum wages, which may or may not be paid, with little meaningful recourse. Immigrant workers with and without authorization to work in the United States are disproportionately represented among the lowest earners. The average wage among all low-wage immigrant workers was $14,400 in 2001. Moreover, almost half of immigrant workers earned less than twice the minimum wage. These hard working individuals are living in poverty. The Earned Income Tax Credit (EITC) lifts almost 20 million low-income working individuals out of poverty every year. Unfortunately, the EITC does not apply if a worker, her spouse, or her qualifying child does not have a Social Security number. Consequently, many low-income immigrant working families cannot qualify for the EITC. However, the Child Tax Credit (CTC) under certain circumstances may provide relief. This Article begins with an explanation of the complex operation of the CTC. The operation of the CTC is examined by focusing the analysis on the different tax consequences for working poor families in which each member has a Social Security number (documented) and those in which at least one member does not have a Social Security number (undocumented). Next, the Article demonstrates how the CTC fails to ensure that undocumented, working poor families do not pay any taxes. Finally, the Article proposes a legislative reform for this onerous problem and encourages Congress to provide relief for all hard-working poor families.

Minimum Wages, Labor Market Institutions, and Youth Employment: A Cross-National Analysis

The authors estimate the employment effects of changes in national minimum wages using a pooled cross-section time-series data set comprising 17 OECD countries for the period 1975–2000. The average effects they find are consistent with the view that minimum wages cause employment losses among youths. However, the evidence also shows considerable variation across countries. In particular, disemployment effects of minimum wages appear to be smaller in countries that have subminimum wage provisions for youths. Regarding other labor market policies and institutions, the authors find that more restrictive labor standards and higher union coverage strengthen the disemployment effects of minimum wages, while employment protection laws and active labor market policies designed to bring unemployed individuals into the work force help to offset these effects. Overall, the disemployment effects of minimum wages are strongest in the countries with the least regulated labor markets.

Minimum Wages, Labor Market Institutions, and Youth Employment:
 A Cross-National Analysis

We estimate the employment effects of changes in national minimum wages using a pooled cross-section time-series data set comprising 17 OECD countries for the period 1975-2000, focusing on the impactof cross-country differences in minimum wage systems and in otherlabor market institutions and policies that may either offset or amplify the effects of minimum wages. The average minimum wage effects we estimate using this sample are consistent with the view that minimum wages cause employment losses among youths. However, the evidence also suggests that the employment effects of minimum wages vary considerably across countries. In particular, disemployment effects of minimum wages appear to be smaller in countries that have subminimum wage provisions for youths. Regarding other labor market policies and institutions, we find that more restrictive labor standards and higher union coverage strengthen the disemployment effects of minimum wages, while employment protection laws and active labor market policies designed to bring unemployed individuals into the work force help to offset these effects. Overall, the disemployment effects of minimum wages are strongest in the countries with the least regulated labor markets.

Minimum Wages, Labor Market Institutions, and Youth Employment: A Cross-National Analysis

We estimate the employment effects of changes in national minimum wages using a pooled cross-section time-series data set comprising 17 OECD countries for the period 1975-2000, focusing on the impact of cross-country differences in minimum wage systems and in other labor market institutions and policies that may either offset or amplify the effects of minimum wages. The average minimum wage effects we estimate using this sample are consistent with the view that minimum wages cause employment losses among youths. However, the evidence also suggests that the employment effects of minimum wages vary considerably across countries. In particular, disemployment effects of minimum wages appear to be smaller in countries that have subminimum wage provisions for youths. Regarding other labor market policies and institutions, we find that more restrictive labor standards and higher union coverage strengthen the disemployment effects of minimum wages, while employment protection laws and active labor market policies designed to bring unemployed individuals into the work force help to offset these effects. Overall, the disemployment effects of minimum wages are strongest in the countries with the least regulated labor markets.

Minimum-Wage Enforcement and the Low-Wage Labor Market

America’s low-wage workers have fared poorly during the past two decades. Since the late 1970s, the wages of workers at the tenth percentile of the wage distribution have declined in both absolute terms (adjusting for inflation) and relative to those of middle- and high-wage workers. This paper examines the influence of the enforcement of the minimum wage by the U.S. Department of Labor on the wages of the poorest workers. It concludes that enforcement can and does raise those wage levels for workers receiving subminimum wage, but that the Department faces several problems in ensuring that employers comply with the law. The resources of the Department’s enforcement arm have diminished over time, whether measured by inflation-adjusted budgets, the number of its investigators, or the number of enforcement actions it has taken. More importantly, the Department also has to work within a system that offers few deterrents to the minority of employers that is bent on violating the law and little compensation to workers who are denied the wages to which they are legally entitled. Recommendations for improving the enforcement of labor standards in low-wage labor markets include increasing penalties, plugging legal loopholes, providing incentives to employers to put enforcement pressure on their subcontractors and competitors, and making it easier for unions and other worker organizations to take collective action to help to enforce the minimum wage.

The incidence of subminimum pay among native and immigrant workers.

This paper econometrically compares the subminimum wage propensities of immigrants and US natives using 1989 microdata. A conventional expectation is that immigrants are more likely to earn subminimum wages because of their lesser education and knowledge of labor rights. However, immigrants also tend to participate full time in the labor market and field studies suggest they provide employers an 'experienced' labor pool. Indeed, our findings indicate that immigrants by age, sex, and race/ethnic group are less likely than natives to receive subminimum wages. These findings imply that the foreign born do not contribute disproportionately to the informal economy.

Organizing Mexican-American Women in the Garment Industry:

This essay examines the organizing activities of La Mujer Obrera (The Woman Worker), a labor organization for Mexican-American women garment workers in El Paso, Texas. The organization struggles to eliminate workplace abuses such as sub-minimum wages, the non-payment of wages, and work speed-ups. The same market forces that drive the small, marginal shops to neglect health and safety standards, pay sub-minimum wages and pressure their workers to achieve high production quotas hamper La Mujer Obrera's organizing efforts. Although La Mujer Obrera has achieved a number of political victories, it is argues that the group faces overwhelming problems deeply rooted in the structure of the clothing industry itself.

Comment on David Neumark and William Wascher, “Employment Effects of Minimum and Subminimum Wages: Panel Data on State Minimum Wage Laws”

In their article published in the Minimum Wage Research Symposium in the October 1992 issue of this journal (Industrial and LaborRelations Review, Volume 45, Number 1, pp. 55-81), David Neumark and William Wascher claim to find empirical support for three propositions: (1) a higher minimum wage leads to a lower teenage employmentpopulation rate; (2) the effect of the minimum wage on employment can be seen within a year, but becomes stronger after two years; and (3) in states with legal subminimum wages, a significant fraction of teenage employees are paid a subminimum wage, and the availability of a subminimum wage blunts the disemployment effect of the minimum wage. The same symposium contains three papers by us that present empirical evidence suggesting conclusions opposite those of Neumark and Wascher.1 Since Neumark and

Comment on David Neumark and William Wascher, "Employment Effects of Minimum and Subminimum Wages: Panel Data on State Minimum Wage Laws"

We re-examine the evidence presented by Neumark and Wascher (1992) on the employment effect of the minimum wage. We find three critical flaws in their analysis. First, the school enrollment variable that plays a pivotal role in their specifications is derived on the false assumption that teenagers either work or attend school. Measurement error biases contaminate all the empirical estimates that use this enrollment variable. Second, Neumark and Wascher measure the effect of the minimum wage by a coverage-weighted relative minimum wage index. This variable is negatively correlated with average teenage wages. Taken literally, their results show that a rise in the coverage-weighted relative minimum wage lowers teenage wages. Examining the direct effects of state-specific minimum wages, we find that increases in state minimum wages raise average teenage wages but have essentially no employment effects. Finally, a careful analysis of Neumark and Wascher's data shows that subminimum wage provisions are rarely used. This casts doubt on their claim that subminimum provisions blunt any disemployment effect of the minimum wage. Neumark and Wascher contend that other minimum wage studies are biased by failing to control for school enrollment, and by failing to consider the lagged effects of minimum wages. We re-analyze the experiences of individual states following the April 1990 increase in the Federal minimum wage, allowing for a full year lag in the effect of the law and controlling for changes in (properly measured) enrollment rates. Contrary to their claims, allowing for lagged effects and controlling for enrollment status actually strengthens the conclusion that the 1990 increase in the Federal minimum had no adverse employment effect.

Employment Effects of Minimum and Subminimum Wages: Reply to Card, Katz, and Krueger

In Neumark and Wascher (1992), we present findings supporting the earlier consensus that minimum wages reduce employment for teens and young adults, with elasticities in the range -0.1 to -0.2. In addition, we find that subminimum wages moderate these disemployment effects. Card, Katz and Krueger (1993) criticize numerous aspects of our analysis, and contest our conclusions. This reply presents an assessment of their arguments, as well as additional evidence related to some of the criticisms that they raise. We conclude that the issues raised by Card, et al., upon further examination, do not alter the conclusions from our original paper, and in some cases even reinforce those conclusions.

Employment Effects of Minimum and Subminimum Wages: Reply to Card, Katz, and Krueger

Employment Effects of Minimum and Subminimum Wages: Reply to Card, Katz, and Krueger

Employment Effects of Minimum and Subminimum Wages: Panel Data on State Minimum Wage Laws

Using panel data on state minimum wage laws and economic conditions for the years 1973–89, the authors reevaluate existing evidence on the effects of a minimum wage on employment. Their estimates indicate that a 10% increase in the minimum wage causes a decline of 1–2% in employment among teenagers and a decline of 1.5–2% in employment for young adults, similar to the ranges suggested by earlier time-series studies. The authors also find evidence that youth subminimum wage provisions enacted by state legislatures moderate the disemployment effects of minimum wages on teenagers.

Employment Effects of Minimum and Subminimum Wages: Panel Data on State Minimum Wage Laws

Employment Effects of Minimum and Subminimum Wages: Panel Data on State Minimum Wage Laws

The Effect of the Minimum Wage on the Fast-Food Industry

Using a longitudinal survey of fast-food restaurants in Texas, the authors examine the impact of recent increases in the federal minimum wage on a low-wage labor market. Less than 5% of fast-food restaurants were using the new youth subminimum wage in July/August 1991, even though the vast majority paid a starting wage below the new hourly minimum wage immediately before it became effective. Although some restaurants increased wages beyond the level needed to comply with higher minimum wages in both 1990 and 1991, those federal minimum wage increases greatly compressed the distribution of starting wages in the Texas fast-food industry. Two findings at variance with conventional predictions are that (1) employment increased more in those firms likely to have been most affected by the 1991 minimum wage increase than in other firms and (2) price changes were unrelated to mandated wage changes.

A Model for Analyzing Youth Labor Market Policies

This article formulates a general equilibrium model for analyzing the youth labor market. At the heart of the model is an interplay between a labor force with heterogeneous ability levels and a minimum wage restriction. Ability affects performance on skilled jobs and, to a lesser extent, on unskilled jobs. Workers are less productive as youths than as adults. The model is applied to rationalize several results from available studies and to analyze the effects of three representative policies: a youth subminimum wage, subsidies paid to firms that hire youths, and subsidies that offset the costs of on-the-job training.

MINIMUM WAGES AND THE DEMAND FOR LABOR

I formulate measures of the effective minimum wage, based on broad definitions of the labor costs that face employers, and use these measures in reestimating some simple equations relating the relative employment of youths and adults to the U.S. minimum wage using aggregate data for 1954-78.I then ground the model more closely in the theory of factor demand, first by adding the relative wages of youths and adults to the equation describing their relative employment, and then by specifying a complete system of demand equations for these two types of labor. Teen employment responds quite robustly to changes in the effective minimum in these specifications, with an elasticity of -0.1. A translog cost function defined over young workers, adults, and capital shows that the effective minimum wage reduces employers' ability to substitute other factors for young workers. Using both sets of results, I find that a subminimum wage for youths would have increased their employment with at most a small loss of jobs among adults.

The Economic Impacts of Minimum Wage Laws: A New Look at an Old Question

This article uses a radically different methodology to address the question of the impact of minimum wage laws on employment and earnings. The methodology uses the adult wage structure which exists prior to a change in the federal minimum wage to identify the members of the subminimum wage population. This allows the parameterization of the disemployment effects of the minimum wage amendment on the subminimum population and the spillover employment effects on the above-minimum population. The members of the subminimum population are found to experience considerably reduced employment probabilities and annual hours worked (conditional on employment). Some evidence of above-minimum spillover effects is also found. The paper evaluates the impact of the minimum on the earnings distribution and concludes that the burden of the minimum wage falls most severely on females. This effect on adult females is surprisingly neutral with respect to race. The greatest beneficiaries of the minimum among the adult population are union members. Once again, this effect is relatively neutral with respect to race.

Subminimum Wages for the Handicapped under Minimum Wage Regulations

Subminimum Wages for the Handicapped under Minimum Wage Regulations