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JOLLY SWIFT
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Published on 12/10/2019 additional information available

Could a higher minimum wage save lives?

#minimum
# wage
# policy
#economics


I read two excellent, but very different, papers on the minimum wage this week, and wanted to talk about them a bit with y’all.

 

One is a comprehensive review of the evidence on minimum wages conducted by Arindrajit Dube for the British government. The Conservative cabinet has proposed gradually raising the country’s minimum wage to £10.50 an hour (about $15) by 2024, whereas Labour wants to raise it to £10 an hour ($14.28) immediately.

 

Dube is one of the leading experts on the effects of minimum wage laws within economics, and has typically found small employment effects, if any, from the policy: In practice, employers don’t seem to reduce employment that much in response to hikes in the minimum wage, contrary to what critics have asserted for decades.

 

There are good, credible economists who disagree with that conclusion (you can read a good minimum wage-skeptical summary of the disagreement here) but Dube does precise, careful work and has by all accounts dramatically expanded what we know about minimum wages.

 

His review for Her Majesty's Treasury concludes that while there are some studies that have found larger employment effects, the weight of the evidence suggests that a wage set at or below 59 percent of the median wage won't reduce employment much (see this chart for a summary of the effects found in each study Dube reviews). The Conservative government wants to set the minimum at 60 percent to two-thirds the median wage, which is at the high end of minimums Dube considers, but the review suggests the negative impacts will be minimal.

 

It’s a good read, summarizing a large and still-growing literature nearly a quarter-century in the making. There are few topics in economics that have fueled as much empirical research as the minimum wage’s effects on employment, and Dube’s review is a good indication that that research is getting closer to a reliable answer.

 

The other minimum wage paper was on a question I’d never seen anyone address before: whether minimum wage increases save lives.

 

Krista Ruffini, a doctoral student at Berkeley's Goldman School of Public Policy who is currently on the economics job market (for any hiring committee members reading this), pulled together 25 years of administrative records for patients in long-term residential care and tried to isolate how their health changed in response to their caregivers getting a minimum wage increase. 

 

She adapts statistical methods that Dube has developed and compares counties where the minimum wage was increased to neighboring counties where it was not. She finds that minimum wages usually translate into higher pay for nursing home staff — a 10 percent hike in the minimum wage raises their average pay by 1.2 to 1.7 percent.

 

This, she documents, has a variety of health effects, including fewer health code violations during inspections, fewer bedsores (technically called "pressure ulcers"), and, most importantly, a large reduction in mortality. Raising the minimum wage by 10 percent would prevent 15,000-16,000 deaths every year, Ruffini estimates.

 

Ruffini is upfront that she’s not entirely sure what’s driving this outcome. It could be that higher wages attract better employees who take better care; it could be that tighter profit margins force nursing homes to direct care more efficiently, or that it motivates staff to be more productive (a hypothesis known as “efficiency wages”).

 

And you should read the paper with the standard set of caveats: It’s one paper, it has not been peer-reviewed (not that the peer review process is that spotless itself), and it’s the first paper I know of linking the minimum wage to lower nursing home mortality.

 

That said, the findings are plausible. Other studies have linked minimum wage increases to reduced deaths from low birth weight, heart disease, and suicide. Research on non-mortality outcomes and on drug overdose deaths have largely found null effects, except that it seems to reduce smoking.

 

More specific to Ruffini’s paper, two recent studies have suggested that increased staffing in nursing homes reduces mortality. It wouldn’t shock me if “more staff” and “better staff” had similar effects on patient outcomes.

 

At the very least, Ruffini’s paper should force us to shift the debate on the minimum wage away from a narrow focus on whether or not it costs jobs. We should also be trying hard to figure out if it saves lives.



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