Estimating the Elasticity of Labor Supply to a Firm: Results from a Field Experiment
“New Monopsony” models imply that firms can possess wage-setting power even in competitive markets so long as they face an upward-sloping labor supply curve due to labor market frictions. However, previous research has yielded wildly different estimates of the elasticity of labor supply to a firm. Using a field experiment where identical job offers were posted with varying wages in statistically matched or the same area, I estimate that the elasticity of labor supply to a restaurant to be quite high, between 11.6 and 20.9, implying that workers are hired at wages between 92 and 95 percent of their marginal products. These results provide evidence for a model where firms only possess wage-setting power over incumbent employees, while new employees are hired at wages close to their marginal products. The policy implications of such a model are discussed.
Alternatives to Paying Efficiency Wages: Why no PEOPLEFAX?
Efficiency wage theories of unemployment, such as those of Shapiro and Stiglitz (1984), predict that employers will choose to pay employees above market-clearing wages in order to deter shirking by workers, since doing causes workers who are fired for shirking to incur an implicit penalty when he or she finds another job at the market-clearing wage. However, paying super normal wages may not be the only solution to this problem. When the Montgolfier Paper Mill encountered rampant shirking and laborers who “left their employ[ers] when they tried to discipline them” (Horn, p. 37) in the 1780s, efficiency wage theory would expect the Montgolfiers to respond by paying efficiency wages. However, they instead made a number of reforms the most significant of which was use of the certificat de conge, a “record of [each employees'] previous employment and conduct” (Rosenband, p. 233) maintained by the employer. Under this system, the Montgolfiers could pay normal market wages and still cause their workers to incur penalties for shirking. While it's not difficult to imagine such a system being used in lieu of paying super normal wages in modern economies, legislative barriers exist in several jurisdictions to employers giving detailed feedback on past employees to other potential employers.
Puerto Rico’s Minimum Wage: Revisiting a Price Floor with “Bite”
Abstract Revisiting research from the 1990s from Castillo-Freeman and Krueger, I use the synthetic control method of Abadie et al. to estimate the impact of the most recent increase in the federal minimum wage on the employment of teens and young adults in Puerto Rico. I estimate that the employment/population ratio of this group in Puerto Rico was 30-40% lower than that of a data-constructed synthetic Puerto Rico which did not raise its minimum wage. Placebo tests on other countries, time periods, and population groups suggest that a significant portion of this gap is a result of the minimum wage, rather than unique local shocks or bias in the synthetic control procedure. The estimate of the elasticity of teen/young adult employment to the minimum wage in Puerto Rico is -0.74, much higher than mainland estimates while still implying that workers saw overall increases in pay. The evidence of a disemployment effect and strength of the counterfactual are stronger for males than females. A synthetic control is also constructed for the Puerto Rican Accomodation and Food Industry, where the minimum wage is more likely to bind. Results imply an elasticity of Accomodation and Food employment to the minimum wage of -0.21. These results suggest that the textbook model of the minimum wage starts to dominate any other effects for minimums that are at most 71% of the median wage.