This week in Class Notes: Minimum wage increases do not appear to increase unemployment (but may push up non-participation among younger workers); low-skilled immigration decreases the gender pay gap in weekly hours worked; and the gap in educational achievement between high- and low-income students is the same today as half a century ago. This week's top chartshows that a significant number of low-income students are still missing out on school-awarded financial aid. Paul Waldman opines on the role of government in creating conditions where people without college degrees can still succeed.
This week’s spotlight is on housing and features the Atlas of Inequality: this shows that income inequality can be seen not only in where people live but where they grab a cup of coffee. Finally, the team over here at Brookings is thrilled to announce that our own Isabel Sawhill just won a silver medal at the 2019 Axiom Business Awards for her book "Forgotten Americans: An Economic Agenda for a Divided Nation."
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The effect of minimum wages on employment has been analyzed extensively, but empirical studies have not produced definitive results. According to Ernest Boffy-Ramirez, the main empirical challenge faced by researchers is the absence of a valid counterfactual control group, to assess what would have happened without minimum wage changes. This is not an area where we can run a randomized controlled trial. Boffy-Ramirez addresses this challenge by using individual-level data and short 4-month panels to observe the impact of a minimum wage change on employment for specific individuals. He finds no evidence of increased unemployment immediately after a minimum wage increase, nor of employers substituting full-time workers with part-time workers.
On the other hand, labor force participation decreases especially for the 20-24-year-old age group. Minimum wages may not impact those already working, but may push those who are not a little further away from the labor market.
The gender wage gap among highly educated workers persists partly because men work longer hours, especially in occupations where long hours have the biggest impact on pay. One factor influencing women’s hours is their disproportionate share of unpaid work at home. Patricia Cortés and Jessica Pan exploit cross-city variation in low-skilled immigrant flows as a proxy for the price of outsourcing household production (i.e. low-skilled immigrants lower prices of household production). They conclude: “Low-skilled immigration inflows induce young women to enter occupations with higher returns to overwork and shift women toward higher quantiles of the male wage distribution.”
Gaps in educational achievement by socio-economic status (SES) have remained constant for the last five decades, according to Hanushek et al. Students in the top decile of the SES distribution have been three to four years ahead of students in the bottom decile in terms of learning throughout this period, suggesting that a whole battery of policies designed to close the gap have not been effective. The gap may result in limited intergenerational mobility, since education is a strong predictor of future income. The authors suggest that improving the quality of teachers and focusing on the high school years in particular are likely to be important steps towards improving educational outcomes for lower-income students.
Low-income students whose family income is just above the Pell eligibility threshold get substantially less generous school-awarded financial aid, especially in schools that have made the most progress in increasing their numbers of Pell-eligible students. This week's top chart from the Washington Post shows that the representation of low-income students has fallen at the main campuses of some flagship universities celebrated for providing opportunities to them.
“It's harder for government to do anything about the credentialism that creates divides between those who went to elite schools and everyone else. But it is worth asking whether government can do more to create the conditions where people without college degrees can still succeed, as seems to be becoming harder and harder...Government can indeed create the conditions to make that possible, with living-wage laws, making child care available and mandating family leave, providing people health care, promoting collective bargaining and having labor laws that give workers power," writes Paul Waldman in the Washington Post.
This week’s spotlight on housing features the Atlas of Inequality, a new MIT Media Lab project. Data shows that income inequality is not limited to neighborhoods where people live. Places such as restaurants, stores and other areas where people spend their free time are all highly unequal by economic background.
“At one coffeshop in Boston, near Hynes Convention Center, visitors come from a variety of income levels. But at a second coffeehouse, a mere 2-minute walk away, people are almost exclusively from the metro area's lowest income bracket,” writes Benjamin Swasey of WBUR about the graphic below:
"Forgotten Americans: An Economic Agenda for a Divided Nation," by Isabel Sawhill (Yale University Press) won a silver medal at the Axiom Business Book Awards 2019. Sawhill addresses economic, cultural, and political divisions in American society and what may be done to bridge them.