Tag: minimum wage

Would a Higher Minimum Wage Meaningfully Affect Poverty Levels Among Women? – A Simulation Case from Georgia

Posted on February 27, 2023 | Policy Brief

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In economic literature the effect of minimum wage on the labour market and its relevance as an anti-poverty, equality-enhancing policy tool, is a matter of vigorous debate. The focus of this policy brief is a hypothetical effect on poverty rates, particularly among women, following an increase in the minimum wage in Georgia. A simulation exercise (Babych et al., 2022) by the ISET-PI research team shows that, in Georgia, a potential increase in the minimum wage is likely to result in an overall positive albeit small reduction in poverty rates in general. At the same time, women are likely to gain more from such minimum wage policy than men. The findings are consistent with the literature claiming that a minimum wage increase alone may not result in meaningful poverty reduction. Any minimum wage increase should thus be enhanced by other policies such as training programs increasing labor force participation among women. 

Many countries around the world have enacted minimum wage laws. According to the International Labour Organization (ILO) “Minimum wages can be one element of a policy to overcome poverty and reduce inequality, including those between men and women” (ILO, 2023). In economic literature, the minimum wage debate has been particularly acute, with pros and cons of the minimum wage increases, their effect on the labor market, and their relevance as an anti-poverty and equality-enhancing policy tool fiercely contested in empirical studies and simulation studies. In this policy brief, we focus on the effect of a minimum wage increase in Georgia on poverty rates, and in particular poverty rates among women.

Minimum Wage Effects

According to the European Commission (2020) a number of benefits is associated with the introduction of minimum wage. These benefits include a reduction in in-work poverty, wage inequality and the gender pay gap, among others.

International evidence, however, cautions against considering an increase in minimum wage as the silver bullet to end poverty. A 2019 report by the International Labour Organization (ILO, 2019) shows that the incidence of poverty among the working poor is comparable to the incidence of poverty among individuals outside of the labor market. Therefore, even if an increase in minimum wages would lift all working poor out of poverty, a substantial number of poor would remain.

Moreover, minimum wage can have a potential adverse effect on employment of the most vulnerable by deterring firms from hiring low-wage, low-skilled labor (Neumark, 2018).  The adverse employment effect will be stronger if current wages correspond more closely to the real productivity of labor. In such scenario companies would lose by retaining low-productivity workers and, likely respond to the increase in minimum wage by laying off workers, resulting in the loss of wages, rather than in their increase. On the other hand, if salaries are lower than the real productivity of the less productive workers, companies might still be able to profit from employing them and will not be forced to lay them off, resulting in a wage increase for low-wage workers.

Whether – and to what extent – the introduction of a minimum wage reduces poverty and/or assists low-income households then depends on how many individuals are going to lose their jobs, how many workers will maintain their jobs and receive a higher wage, and where these winners and losers are positioned along the distribution of family incomes.

With regard to employment effects, the results are not perfectly homogeneous. On the one hand, a large body of evidence suggests that minimum wages do lower the number of jobs accessible to low-skill employees (Sabia, Burkhauser and Hansen, 2012; Sotomayor, 2021; Neumark, 2018) On the other hand, some scholars argue that once the study design is changed to take into account the non-random distribution of minimum wage policies in different parts of the country in question, the “disemployment effect” of minimum wage policies (considering the example of United States) largely disappear (Allegretto et al., 2013; Dube et al., 2010).

With regards to poverty, a number of studies look at minimum wage as an anti-poverty policy tool for developing countries and consider its effectiveness in reducing poverty and/or inequality. For example, a study by Sotomayor (2021) suggests that poverty and income inequality in Brazil decreased by 2.8 and 2.4 percent respectively within three months of a minimum wage increase. Effects diminished with time, particularly for bottom-sensitive distribution measures, a process that is consistent with resulting job losses being more frequent among poorer households. The fact that the subsequent yearly increase in the minimum wage in Brazil resulted in a renewed drop in poverty and inequality shows that possible unemployment costs might be outweighed by benefits in the form of higher pay among working persons and – potentially – by positive spillover effects such as increased overall consumption.

Minimum Wage and Female Poverty

As in the case of poverty in general, there is some discrepancy in the literature on whether a minimum wage increase would help reduce poverty among women. Single mothers have been the focus of research in this regard since they are typically the most vulnerable low-wage workers, likely to be hurt by the loss of employment following an increase/ introduction of a minimum wage. Burkhauser and Sabia (2007) argue that the minimum wage increases in the U.S. (1988-2003) did not have any effect on the overall poverty rates, on the poverty rates among the working poor, or on poverty among single mothers. They argue that an increase in Earned Income Tax Credit (EITC), which provides a wage subsidy to workers depending on income level, tax filing status, and the number of children, would have a higher impact on poverty, in particular among single mothers.

In the meantime, Neumark and Wascher (2011) find that EITC and minimum wage reinforce each other’s positive effect for single women with children (boosting both employment and earnings), but negatively affects childless single women and minority men. Another study on the U.S. (Sabia, 2008) looked at the effect of minimum wage increases on the welfare of single mothers, finding that most of them were unaffected as they earned above-minimum wage. Single mothers with low-education levels did not see an increase in net incomes due to the negative effect on employment and hours worked: for low-skilled individuals, a 10 percent increase in minimum wage resulted in an 8.8 percent decline in employment and an 11.8 percent reduction in hours worked.

Yet another study (DeFina, 2008) focus on child poverty rates and show that minimum wage increases have a positive (reducing) impact on child poverty in female-headed families. The effect is small but significant (a 10 percent increase in the minimum wage decreases child poverty rates by 1.8 percentage points), controlling for other factors.

Ultimately, the effect of minimum wage on poverty among women or female-headed households is somewhat ambiguous. It depends on the poverty threshold used, other policy instruments (such as the EITC), existing incentives to enter employment and how, in the specific country of interest, labor laws may affect the employer’s cost of hiring (e.g. for France, see Laroque and Salanie, 2002).

The discussion is however relevant for countries like Georgia, where the wage gap between men and women is quite large, and where more women than men tend to work in low-wage and vulnerable jobs. While the overall poverty gap between men and women in Georgia is insignificant (mainly because poverty is measured at the household level), the gap becomes apparent when comparing female-headed households to male-headed ones. The poverty rates in the former case are nearly 2 percentage points higher in Georgia (20 percent vs. 18.3 percent in 2021). The poverty rates are the highest among households with only adult women (39.3 percent for all-female households vs. 20.1 percent overall in 2018).

A Simulation of a Minimum Wage Raise in Georgia

The Georgian minimum wage legislation dates back to 1999. The presidential decree N 351 from June 4, 1999 states that the minimum (monthly) wage that is to be set in Georgia is equal to 20 GEL (with some specific exceptions in the public sector). This is a non-binding threshold.  Therefore, one has to think carefully what consequences might arise from raising the minimum wage to a much higher level. In addition to previously discussed aspects, one issue to keep in mind is the different average wages across different regions in Georgia. For example, a national minimum wage increase might have more of an impact in poorer regions, where both wages and incomes are lower, while it may still be non-binding in Tbilisi.

The ISET-PI research team (Babych et al., 2022) use Georgian micro data from the Labor Force Survey (LFS) and the Household Integrated Expenditure Survey (HIES), to simulate the effect of instituting a nation-wide minimum wage on both employment and poverty rates in different regions of Georgia. One focus area of the study was to analyze the effects of a minimum wage increase on female poverty. As with any exercise using a simulation approach, this study is subject to limitations imposed by the assumptions used, e.g. how much labor demand would respond to changes in the minimum wage, etc. The study considered two hypothetical thresholds of the minimum wage; 250 and 350 GEL respectively.

Figure 1. Share of private sector employees earning below certain thresholds, by gender, 2021.

Source: Authors’ calculations based on the Labor Force Survey (Geostat, 2021).

The expected household income after the minimum wage increase was calculated and then compared to the poverty threshold (for each household in a standard way, using the “adult equivalence” scale). According to this methodology, any person who lives in a household which falls below the poverty threshold is considered to be poor. A “working poor” household is defined as a household below the poverty threshold where at least one adult is working.

Figure 1 shows that there is a substantial share of both men and women whose monthly wage income falls below the hypothetical minimum wage thresholds. In addition, women are more than two times as likely to be earning below these thresholds. However, the possible impact from an increased minimum wage on female vs. male poverty is not clear-cut. Since many women are part of larger households which include adult males, their possible income losses/gains may be counterbalanced by income gains/losses of male family members, leaving the overall effect on household income ambiguous.

In addition, poverty rates are not likely to be much affected by a minimum wage increase if most poor households are “non-working poor” (where adult family members are either unemployed or outside of the labor force), a consideration particularly relevant for Georgia. The share of poor individuals who live in “working poor” households (with at least one household member employed) is just 41 percent nationally (and 35 percent in rural areas), meaning that close to 60 percent of poor individuals nationwide (and 65 percent in rural areas) are not likely to be directly affected by minimum wage increases.

Female vs. Male Poverty: Scenarios Following a Minimum Wage Increase

As one can see in Figure 2, increased minimum wages tend to reduce poverty, but the impact is not larger than one percentage point. Not surprisingly, females benefit more than males (0.3 and 0.8 percentage points vs. 0.2 and 0.9 percentage points poverty reduction for men and women respectively, under different threshold scenarios).  The maximum positive impact on poverty reduction is observed under a higher minimum wage threshold.

Figure 2. Estimated impact on poverty rates, based on the national subsistence minimum.

Source: Authors’ calculations based on the Household Integrated Expenditure Survey (Geostat, 2021).

The impact of an increased minimum wage on the expected median consumption of households doesn’t exceed a few percentage points either, as illustrated in Figure 3.

Figure 3. Median monthly consumption per “equivalent adult” in the household under the status quo and minimum wage scenarios, 2021.

Source: Authors’ calculations based on the Household Integrated Expenditure Survey (Geostat, 2021).

The impact is greatest in urban areas other than Tbilisi (between a 2.5 percent and a 4.2 percent increase in median consumption relative to the status quo). The lower impact in Tbilisi is most likely driven by relatively higher wages, while the low impact in rural areas is likely driven by lower participation in wage employment.

Conclusions

In the hypothetical case of Georgia, an impact of a minimum wage increase on poverty rates is expected to be limited, in line with the literature. In our study this finding is mostly driven by the fact that only a relatively small share of poor individuals live in “working poor” households (about 40 percent, nationally). The remaining 60 percent of poor individuals will be unaffected by the reform.

The quantitative impact on female and male poverty is estimated to be low, although the female poverty rate reduction is somewhat larger than among males.

It is important to note that the analysis doesn’t consider possible differential impacts on different groups of vulnerable families, such as families with small children and single mothers with small children. Some reasons to why groups of households may or may not be affected by the hypothetical minimum wage increase, based on their employment status and other factors, have been discussed above.

Another important point is that our exercise should not be seen as an argument against an increase of the minimum wage in Georgia. Instead, it suggests that such a reform would not have much of an impact if done in isolation. Indeed, the existing literature on minimum wage seems to be in consensus on the fact that minimum wage policies would be more impactful if supplemented by the following measures:

  • Maintain and expand targeted social assistance to groups that do not benefit or that are losing jobs/incomes as a result of the minimum wage changes
  • Have job re-training programs in place to help laid-off workers
  • Have human capital investment programs in place to increase workers’ productivity, in particular for low-productivity sectors
  • Consider other support instruments targeted toward the most affected groups of the population such as single working mothers etc.

These recommendations should be incorporated in the policy making regarding minimum wages in Georgia.

Acknowledgement

We are grateful to Expertise France for financially supporting the original report (Babych et al., 2022), which features some of the results and points raised in this policy brief.

References

Disclaimer: Opinions expressed during events and conferences are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.

Minimum Wage Spike and Income Underreporting

Posted on January 16, 2023 | Policy Brief

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The labor markets of many transition countries are characterized by two features: a spike at the minimum wage level in the wage distribution and widespread use of so-called envelope wages, i.e. non-declared cash payments in addition to the official wage. In this brief, we present a body of suggestive evidence showing that tax evaders are overrepresented among minimum wage earners in Latvia. 

Introduction

Labor markets in many transition and post-transition countries are characterized by the prevalence of payroll tax evasion in the form of envelope wages, i.e. non-declared cash in addition to the official wage (see for instance Putnins and Sauka (2015) for Latvia, Paulus (2015) and Kukk and Staehr (2014) for Estonia and  Bíró et al. (2022) and Elek et al. (2012) for Hungary).

Another defining characteristic of these transition economies is a very large peak at exactly the minimum wage in the wage distribution. To explain this phenomenon, Tonin (2011) argues that the mass of individuals at the minimum wage level is composed to a large extent of workers receiving envelope wages, where employers and employees collude and agree on reporting only the minimum wage to minimize tax liabilities while remaining under the radar of the tax authorities. In such a setup, the minimum wage policy becomes an enforcement tool for the fiscal administration, as it pushes non-compliant firms to convert part of the envelope wage into an official wage so that it reaches the new minimum wage.

However, only scarce concrete evidence shows that payroll tax evaders are overrepresented among minimum wage earners. Considering the regular minimum wage hikes in the region (e.g., a 95 percent increase in Latvia in 2010-2022 and a planned increase by another 24 percent in 2023), understanding the interaction between minimum wage policy and labor tax evasion is crucial.

In this brief, we present a body of suggestive evidence highlighting the prevalence of wage underreporting at exactly the minimum wage level in Latvia.

Data and Methodology

We use Latvian administrative employer-employee data for 2011 to 2015, covering the full Latvian employed population at a monthly rate. To identify tax evasion, we rely on the comparison between small and large firms. The literature studying tax evasion provides considerable evidence showing that small firms tend to evade more taxes than large firms. Kleven et al. (2016) provide a theoretical foundation for this result, showing that collusive evasion is more difficult to sustain in firms with more employees. Empirically, this effect has been documented in many countries (see for instance Putnins and Sauka (2015), Gavoille and Zasova (2021), and Benkovskis and Fadejeva (2022) for the results on Latvia, Bíró et al. (2022) for Hungary, Paulus (2015) for Estonia, and Kumler et al. (2020) for Mexico).

In this brief, we use a very broad definition for firm size categories and divide firms into firms employing 30 or fewer employees as small and firms with more than 30 employees as large. With such a crude definition, it is inevitable that firms below and above the threshold are highly heterogeneous, implying that some firms below the threshold are tax-compliant, while some firms above the threshold are tax-evading. For our purposes though, it is sufficient to assume that the share of evading employees in small firms is larger than that in the sample of large firms.

Results

We begin by plotting the distribution of wages in the private sector. Figure 1 plots monthly wages in the range of 0–1000 Euros in 2011. The right most dashed vertical line in the figure marks the minimum wage (284.57 Euros per month in 2011) and the left most dashed line marks 50 percent of the minimum wage. There are clear spikes at the minimum wage (and at half of the minimum wage). The minimum level wage spike in small firms (top graph) is much more pronounced than in large firms (bottom graph), which is consistent with the idea that the spike is driven by income underreporting.

Figure 1. Gross wage distribution in the private sector in small (< 30 empl.) and large (> 30 empl.) firms in 2011.

Note: Micro enterprises are excluded. Vertical lines depict the minimum wage (284.57 Euro) and half of the minimum wage (142.29 Euro) in 2011. Source: Authors’ calculations.

This explanation implies that employers and employees choose to declare employment and underdeclare earnings instead of staying completely informal, which is consistent with the available evidence. Staying completely informal involves much higher risks of detection if authorities perform regular inspections of workplaces, and in many Central European countries with prevalent income underreporting, completely informal employment is not very common (OECD, 2008). In Latvia, firms have to register employees in the electronic system of the State Revenue Service before they start to work, hence the probability that an unofficially employed person is detected during a workplace inspection is very high (State Labor Inspectorate, 2010). Existing empirical evidence on Latvia also suggests that income underreporting is much more widespread than completely informal employment, which is estimated at only 2–3.5 percent (European Commission, 2014; Hazans, 2012). Hence, we interpret the spikes as indicative of tax evaders bunching at the minimum wage.

Wage Growth Among Minimum Wage Earners

Wages are expected to grow with tenure, but if minimum wage earners receive part of their income in cash, their reported wage can remain unchanged even after years of employment within a firm (as any increase would arguably go through the non-declared cash). To examine if this is the case, we exploit a period when there were no changes in the Latvian minimum wage (January 2011–December 2013). We select employees who were employed by the same firm in all months of 2011–2013, assign them to wage bins according to their wage in 2011, and in each wage bin calculate the share of workers whose wage in 2013 was the same as in 2011. We assign workers to 10-Euro bins, with the exception of minimum wage earners, whom we assign to a bin of 1 Euro.

As evident from Figure 2 minimum wage earners clearly stand out from other employees. In small firms, almost 45 percent of employees earning the minimum wage in 2011 had the same reported wage in 2013. There is also a spike at the minimum wage in large firms (28 percent), but it is less pronounced than in small firms.

Figure 2. Proportion of continuously employed workers facing no wage growth between 2011 and 2013, by wage bins, in small (< 30 empl.) and large (> 30 empl.) firms.

Note: Micro enterprises and public sector firms are excluded. Source: Authors’ calculations.

An alternative explanation for the large share of minimum wage earners who experience no wage growth could be that, for many of them, the minimum wage is binding. To rule this out, we perform the same calculations on a sample of young employees (24 or younger in 2011). Workers in the early stages of their careers tend to have higher returns to experience and tenure; thus, young workers are less likely to have no wage growth after three years of employment with the same firm. Figure 3 plots the results for young workers. In large firms, the spike at the minimum wage is more than twice as small as for the full sample of workers (12 percent vs. 28 percent), but in small firms it remains very high (33 percent).

Figure 3. Proportion of continuously employed young workers (aged 24 or less in 2011) facing no wage growth between 2011 and 2013, by wage bins, in small (< 30 empl.) and large (> 30 empl.) firms.

Note: Micro enterprises and public sector firms are excluded. Source: Authors’ calculations.

Conclusion

This brief documents highly prevalent tax evasion among minimum wage earners in Latvia. In such a context, the minimum wage is a powerful fiscal instrument as a higher minimum wage pushes non-compliant firms to disclose a larger share of their employees’ true earnings. In addition, wage underreporting among minimum wage earners can act as a shock absorber and cushion the negative employment effects of a minimum wage hike in countries where a large share of workers officially receive the minimum wage.

These upsides however come at a cost. The results presented in this brief by no means imply that all minimum wage earners are tax evaders; a notable share of employees receiving the minimum wage on paper do honestly earn only the minimum wage. In our paper (Gavoille and Zasova, 2022), we show that the flip side of the positive fiscal effect of a minimum wage hike is job losses among genuine low-wage earners and closures of tax-compliant firms that are affected by the hikes.

Acknowledgement

This brief is based on a recent article published in the Journal of Comparative Economics (Gavoille and Zasova, 2022). The authors gratefully acknowledge funding from LZP FLPP research grant No.LZP-2018/2-0067 InTEL (Institutions and Tax Enforcement in Latvia).

References

Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.

Career Women and the Family – A New Perspective on the Role of Minimum Wage

Posted on April 29, 2018 | Policy Brief

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This brief finds that whereas in the 1980s richer women had fewer children than women near the middle of income distribution in the US, it is no longer true today. It argues that the rise in inequality is the main driver for this change. Greater income inequality enables high-income families to outsource household production to lower-income people. Changes to minimum wage laws are thus likely to affect the fertility and career decisions of the rich.

“I have frequently been questioned, especially by women, of how I could reconcile family life with a scientific career. Well, it has not been easy.”

 – Marie Curie, 1867-1934

Much has been made of women “leaning in” at work at a cost to their families. Indeed, this discussion has become more prevalent as women have surpassed men in higher education in most developed countries, and have entered prestigious careers en masse, a fact reinforced by public policy. For example, in 2012 the European Commission published a special report on women in decision-making positions, suggesting legislation to achieve balanced representation of women and men on company boards. One natural question to ask is, how high is the cost of a woman’s career to her family? This is a difficult, multifaceted, and even sexist question to ask.

High-income women have historically had fewer kids (Figure 1 for the year 1980). Social scientists’ leading explanations rely on the difficulty of combining children and a career. Under this view of the world, as more women focus on their careers, they have fewer children. On the other hand, the evidence shows that more educated (or wealthier) women produce more educated children. Given these two regularities, the majority of children are born to poorer mothers, and thus receive an inferior education. Moreover, this creates a feedback loop that depresses the average education through time making us question our ability to sustain a satisfactory average level of education.

Figure 1. Fertility rates by income deciles, 1980 and 2010

 

Notes: Calculated using Census and American Community Survey Data. The sample is restricted to white, non-Hispanic married women. Fertility rates are hybrid fertility rates, constructed by age-specific deciles. Deciles are constructed using total household income.

However, the negative relationship between family income and fertility ceases to hold after the 2000s. Figure 1 shows that for the year 2010, the cross-sectional relationship between income and fertility has flattened or even become a U-shape. Today, high-income women have higher fertility rates than those of women near the middle of income distribution. This is a result of a substantial increase in fertility among women in the 9th and 10th decile of family income: they increased their fertility by 0.66 & 0.84 children, respectively. The rise in fertility of high-skilled females was first documented in Hazan and Zoabi (2015), discussed in a previous FREE Policy Brief. The implications are profound; children are more likely to be born to wealthier or more educated mothers than in the past. This has a far-reaching impact on the future composition of the population.

How can we understand the change in fertility patterns over time? We argue that rising wage inequality played an important role. Data for the years 1980 and 2010 show that average real hourly wages, quoted in 2010 $ grew from $28 ($51) to $50 ($64) for women (men) in the 10th decile of the income distribution. This increase was accompanied by stagnant wages for women (men) in the 1st decile, precisely the people who are most likely to provide services that substitute for household chores (Figure 2).  Thus, growing wage inequality over the past three decades created both a group of women who can afford to buy services that help them raise their children, and a group who is willing to supply these services cheaply. In a recent paper, we found that the increase in wage inequality from 1980 and 2010 can actually explain the rise in high income fertility (Bar et al. 2017). Moreover, this rise in inequality has resulted in a large increase in college attendance through the changing patterns of fertility. This is because more children are now born to highly educated mothers.

Figure 2. Wives’ Wage by Income Decile 1980 & 2010

 

Notes: Calculated using Census and American Community Survey Data. The sample is restricted to white, non-Hispanic married men. Deciles are constructed age-by-age, using total household income. Representative wages for each decile is the average of these decile-specific wages from ages 25 to 50.

Our new understanding of the interrelation between income inequality, the relative cost of home production substitutes, fertility pattern and educational choice induces us to rethink some typical economic debates. For instance, consider the minimum wage. The typical debate about the minimum wage is focused on how it affects lower wage individuals in terms of income and their ability to find work. However, if people who earn the minimum wage are disproportionately also those who help raise wealthier families’ children, or simply make running a household easier, then a higher minimum wage can make home production substitutes more expensive for high wage women, making it harder for them to afford both a family and a career. While indirect, this effect can be significant. Figure 3 shows the distribution of the real wage, relative to the minimum wage, both for the industries of the economy associated with home production substitutes and other sectors of the economy. The figure clearly shows that workers in industries associated with home production substitutes are concentrated around the minimum wage and thus are much more likely to earn wages that are close to the minimum wage.

Figure 3. The distribution of real wages, relative to the effective real minimum wage in each state and year, by sector of the economy

Notes: Data from Current Population Survey, 1980–2010, using all workers.

Interestingly, we calculate a change in the cost of home production substitutes following an increase of the Federal minimum wage from $7.25 to $15/hour, as suggested by Bernie Sanders during the 2016 presidential election. It turns out that this increase in the minimum wage would increase the cost of market services that substitute for household chores by about 21.1%. Indeed, the minimum wage has a strong impact on the average wages of workers producing home production substitutes. However, how does this increase affect the economy?

According to our theory, higher costs of home production substitutes would affect women’s choice of how to allocate their time between labor force participation and home production, including raising children. The higher cost of these substitutes induces women to buy less of them and spend more of their time producing home production goods. Indeed, we find that the increase in the minimum wage decreases fertility and increases mothers’ time at home, and more so for higher income households. The magnitudes are large. A 10th (5th) decile household decreases fertility by 12.8% (9.4%), while the mother spends 9.7% (2.5%) more time at home. Notice that these numbers are calculated under the assumption that women can adjust fertility. What about those who are “locked in” their fertility choice? We recalculate changes in mother’s time at home for these mothers using the model’s fertility in 2010 with the increased cost of market services that substitute for household chores. A 10th decile mother increases time at home by 25.9%, while a 5th decile mother increases it by 13.1%. These numbers are larger as the family has not had a chance to scale back fertility. The short run effect on labor supply is also very large. The average reduction in labor supply by women in the 9th and 10th deciles is 3.5%.

Whether an increase in the minimum wage is good or bad for the society is a big question.  Not only does it lie beyond the scope of our theory, but also beyond the scope of social sciences.  However, the one modest contribution we try to make is in observing that an increase in the minimum wage heightens the rivalry between a woman’s career and family. As such, it forces women to forgo one in order to opt for the other.

The sexist nature of our question lay in the implicit assumption that it is the mother’s responsibility to look after the children or home production in general, rather than the father’s. While once this was a nearly universal attitude, it is now increasingly common for fathers to take a more central role in childcare rather than leave everything to the mother. How does this change in gender roles affect our analysis? In modern times, both spouses’ careers are potentially affected by children, as both parents take a role in child care. Fathers are now facing the same tradeoffs as mothers did in the traditional gender role story: children vs. careers. As a result, marketization is more important than ever for career oriented parents.

Talk to a high wage family and no doubt that they’ll readily tell you how important their ability to purchase daycare, prepared food, or other help at home is to their success as parents. Perhaps parents don’t realize that the price of these goods are so intricately linked to inequality or the minimum wage, but the policy maker should bear in mind that these are key factors for career women and the family.

References

  • Hazan and Zoabi (2015), “Do Highly Educated Women Have Smaller Families” The Economic Journal
  • Bar, Hazan, Leukhina, Weiss, and Zoabi (In progress) “Is the Market Pronatalist? Inequality, Differential Fertility, and Growth Revisited”