In January 2019, Senator Bernie Sanders and Representative Bobby Scott introduced the Raise the Wage Act of 2019. The bill proposed to gradually increase the federal minimum wage to $15 per-hour by 2024, after which it would be indexed to median wage growth in the U.S. The legislation would also increase the wage floor for tipped workers (and for workers with disabilities employed in specialized workplaces) until it reached parity with the federal floor for the rest of the U.S. workforce.
On the next pages are figures showing the nominal and real values of the federal floor from 1938 to 2019 (in $2019), and the real log-wage distributions for men (Figure 1A) and women (Figure 1B) in the U.S. between 1973 and 1992 (normalized to $1979). The vertical lines in the wage distribution graphs indicate the real value of the federal floor in a given year.
- a) In the figures, how do changes in the real value of the federal minimum appear to relate to changes in the shapes of the log-wage distributions for men and women over time? Are there gender differences in this relationship? Explain.
- b) Which group is more affected by changes in the real value of the federal minimum? What are the implications of this for how the federal floor affects observed differences in earnings between women and men? How salient are these implications for low-wage relative to high-wage workers?
- c) Provide and explain your predictions of how the Raise the Wage Act would have affected the earnings gap between men and women if it had become law. Do you think that the proposed revisions to the tipped minimum would have also affected the earnings gap? Explain.
- d) Do you think that the Act would have affected employment levels in the U.S., keeping in mind that it would apply to the entire country? Explain.
- e) Suppose each of the following are true: 1) employers of low-wage workers in have monopsony power; 2) single women with children have more inelastic labor supply than single women without children; and 3) men have more elastic labor supply than either group, on average. Draw figures illustrating how monopsony power may lead to de facto wage discrimination against single women with children. In this scenario, which group of single women is more affected by an increase in the federal minimum to $15 per-hour? Explain.
Paid sick leave (PSL) is a job benefit that provides full pay to an employee who misses work due to an illness (flu, cancer, etc.). A study of twenty-two of the wealthiest nations in the world found that the U.S. is the only one that does not have a national law mandating employer-provided PSL. Due to the absence of a federal law, several cities and states have implemented their own PSL laws.
Advocates of PSL laws argue that PSL can reduce turnover and increase productivity among workers, and reduce the spread of infectious diseases in the workplace. Opponents assert that PSL laws will reduce employers’ flexibility to meet their workforce needs and that the resulting increase in labor costs will lead to reduced hiring and greater job loss.
Rhode Island’s Healthy and Safe Families and Workplaces Act was signed into law on September 28, 2017. The Act requires private sector employers with 18-or-more employees to allow their workers to accumulate paid sick leave to use for themselves or to care for a family member. The law – which took effect on July 1, 2018 – mandates that employers provide workers with one hour of paid sick leave for every 35 hours of work, up to maximums of 24 hours (3 work days) in 2018, 32 hours in 2019, and 40 hours (5 work days) in 2020 and beyond. Unused sick leave is carried over to the following year.
- a) The PSL law functions like a mandated job benefit that must be provided by employers. Suppose that labor demand in Rhode Island is fairly inelastic while labor supply is highly elastic. Also assume that workers value the PSL benefits by the same amount that it costs their employers to provide them. Use labor supply and demand curves to analyze the incidence of PSL in a perfectly competitive labor market. How will the cost of the benefit be split between firms and workers in Rhode Island?
- b) In July 2011, Connecticut enacted a law that requires employers to provide one hour of PSL for every 40 hours of work by their service employees, up to a maximum of 40 hours (5 days). The law only applies to service workers in firms with 50-or-more employees.
Suppose Connecticut gives you access to annual data from 2007 to 2015 on individuals’ employment, wages, and occupation (service vs. nonservice), as well as the number of employees at the firm that the individual is employed at. Discuss how you would estimate the effect of the law change on the employment level and wage rate of service workers in Connecticut. What are the potential sources of bias in your research design? What would you do if you had similar data for Rhode Island over the same time period?
To answer this question you will need to reference the three maps on the pages that follow. Under federal law no worker can be compelled to join a union as a condition of employment. Further, the Supreme Court has ruled that workers cannot be forced to pay dues that are used for political purposes. So called right-to-work (RTW) legislation goes a step further by entitling employees to the benefits of a union without paying the dues necessary to maintain the union.
If, for example, an employer mistreats an employee who is not a dues-paying member of the local union, the union must still litigate on that worker’s behalf as if they are a union member, regardless of cost. Non-members also receive the higher wages and benefits negotiated by the union. As such, RTW laws have little to do with a person’s right to work at the employer of their choosing, but instead generate a potential free-riding problem for unions.
- a) As illustrated in Map 1, currently 26 states – mostly in the South and parts of the Midwest and West – have RTW laws on their books. Groups that advocate on behalf of unions argue that such laws hurt the ability of unions to bargain for better wages, benefits and working conditions for their members, and that they also undermine union formation and survival as a result. Do you agree? Why or why not? Does Map 2 – which shows union membership rates by state in 2016 – provide evidence for or against your opinion? Explain.
- b) Map 3 presents each state’s minimum wage in 2019. Describe any associations, if any, that you see with the other two maps. How could RTW laws help to explain these associations, if at all?
- c) Advocates argue that higher unionization rates lead to higher wages and benefits for both union members and nonmembers in unionized sectors. Is this argument valid when markets are perfectly competitive? Explain. How about when labor markets are not perfectly competitive? In the latter case, which states would you expect to have higher average wages given the patterns shown in the maps? Describe how you could test this hypothesis with state-level data that include average log- wages and unionization rates in 2019, as well as a dummy variable equal to one if the state has a RTW law in place. Are there any potential problems with your research design? Explain.
