Friday, January 17, 2014

The minimum wage and turnover

I've been spending a little time poking through Arin Dube's publications and working papers today, and one interesting working paper I found was some research on the impact of the minimum wage on employment flows (also with Lester and Reich). Aside from being interesting in its own right, I'm sharing it here because it speaks to another suggestion that Bob Murphy had in his recent post. Bob writes:
"Again, even taking the new generation of studies at face value, they overlook a major drawback to the progressive goal: The studies look at the absolute growth in employment, rather than the unemployment rate, among low-skill workers. So even if it’s true that, say, a Burger King franchise will hire roughly the same number of teenagers between now and 2020 as it otherwise would have, it might not be the same group of teenagers getting jobs. Rather, at the $7.25 level there will be lower-skilled applicants cycling through, with a high turnover rate as the store manager tries to find the few decent workers in the bunch. At the higher rate of $10.10 per hour, higher-skilled kids (perhaps those from affluent families who are home from college) will enter the mix in greater numbers. The manager will be pickier on the front end in giving somebody a bite at the apple, and there will be less turnover. (Note that this isn’t merely hypothetical; the studies finding “no effect” often cite “lower job turnover” as an explanation for how the firm responds.) Thus, even taking the studies at face value, it is entirely possible that there are a bunch of people with low skills who now can’t get a job, who otherwise would have been able to. They are merely being displaced by higher skilled workers who otherwise would not have been interested in a position paying so little."
Dube's work suggests that at least part of this story is right - the lower turnover part. Their work doesn't seem to speak to the second half of Bob's point about low skill workers.

[I had initially misunderstood this point from Bob - for some reason I read "at the $7.25 level there will be lower-skilled applicants cycling through, with a high turnover rate", and I thought he was referring to the last increase. My comment on this point was therefore a little confused, but I share the skepticism about increased turnover - we apparently agree on more than I thought! You could imagine arguments either way -I don't think it makes sense to increase turnover, but you could imagine ex post learning about productivity at least counter-acting any decline in turnover from more careful screening. However, Dube's research seems to suggest that the forces that act to reduce turnover are stronger.]


  1. Yet another explanation is that it's an efficiency wage type effect in this respect: if you compress the distribution of outside alternatives you're going to reduce the quit rate which also reduces the hire rate because there's no need to keep hiring to maintain a target employment level.

  2. I commented on my skepticism of low turnover, making much same point a Bob here:

    I also remain skeptical of the EITC as compliment argument...but I'm willing to be persuaded.


All anonymous comments will be deleted. Consistent pseudonyms are fine.