September 1999, Vol. 122, No. 9
Précis
Training
and minimum wages
Explaining
long-duration unemployment
Health
and the labor market
The theory of human capital indicates that minimum wages should reduce the amount of firm-sponsored training that a worker receives. In a new working paper from the National Bureau of Economic Research (number 7184), Daron Acemoglu and Jörn-Steffen Pischke find no empirical evidence that minimum wages lead to reduced training.
In the theoretical portion of their study, Acemoglu and Pischke relax the assumption of perfectly competitive labor markets that underlies the human capital theory. They show that theoretically, minimum wages could actually lead to more training for affected workers by giving firms incentive to provide training to their unskilled workers. Specifically, in a case where there are labor market rents, it may be most profitable for firms to increase the productivity of workers affected by a minimum wage.
In the empirical section, the authors analyze data from the National Longitudinal Study of Youth (NLSY), which is sponsored by the Bureau of Labor Statistics. Participants in the NLSY were between the ages of 14 and 22 in 1979. The NLSY oversampled youth from disadvantaged backgrounds, who are more likely to be employed at low-wage jobs. Acemoglu and Pischke study the NLSY panel from 1987 to 1992, a period with notable changes to State and Federal minimum wage laws.
The researchers present empirical results for "affected workers," defined as those workers whose wage in the previous year was below the current minimum wage. Their point estimate shows that, for workers affected by a minimum wage in this sense, the probability of receiving training rises by 1 percentage point. However, this effect is not statistically significant, meaning that there is no evidence of any effect—positive or negative—of minimum wages on training.
Explaining long-duration unemployment
One of the puzzles left by the recent decline of the unemployment rate is the relatively long duration of the spells of unemployment that are occurring. Hoyt Bleakley, Ann E. Ferris, and Jeffrey C. Fuhrer hazard an explanation in the July/August issue of the Federal Reserve Bank of Boston’s New England Economic Review. They observe that the ratio of median duration of ongoing spells of unemployment to the unemployment rate, a measure they use to roughly normalize median duration for the business cycle, was quite stable from the mid-1970s through the early 1990s but since then has risen to much higher levels. Such a rise might ordinarily indicate a decline in job-matching efficiency; however, these statistics do not distinguish between duration of completed spells for workers who become reemployed and the spells of those who leave the labor force.
Using their own calculations based on Current Population Survey microdata, the authors find that there has been little or no upward trend in the ratio of the duration of completed unemployment spells to the unemployment rate for workers who find new jobs. However, they also see that the corresponding ratio for workers who leave the labor force has shown a "distinct uptrend since 1991." This, they go on to say, "suggests that the explanation for relatively high unemployment duration lies with the experience of those who leave the labor force."
A recent survey shows that people with poor health in one year are more likely to lose their jobs by the next year. Also, workers who lose jobs often see their health decline by the following year, according to results of the second California Work and Health Survey. The study was led by Edward Yelin, University of California at San Francisco professor of medicine and health policy, and Laura Trupin, senior research associate at the University’s Institute for Health Policy Studies.
Workers who reported problems with their health in the first year of the survey were more than two times as likely to lose their jobs in the next year as those without such reported problems. Moreover, people who suffered a job loss in the12-month period before the first survey were twice as likely to experience a decline in health and onset of disability as those who did not experience a job loss. Yelin and Trupin found that losing a job and being continuously unemployed both result in a decline in health in the course of a year. The researchers did not find evidence that putting in long hours on the job, holding two or more jobs, or performing physically demanding work leads to poorer health over a period of a year.
The California Work and Health Survey studied the impacts on health of changes in the economy and analyzed how people with health problems fare economically. The second survey, which was administered in 1999 to 2,044 Californians, included 913 individuals who participated in the first survey in 1998.
(The results of this study were reported on MSNBC.com in September.)
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