Yves here. A reminder that policies to reduce inequality have social and economic effects far beyond the the labor market or “competitiveness”.
By George Wehby, Associate Professor, Department of Health Management and Policy, University of Iowa; Dhaval Dave, Stanton Research Professor in Economics, Bentley University; and Robert Kaestner,Professor, School of Public Policy and Department of Economics, University of California, Riverside. Originally published at VoxEU
Despite ample research on the effects of minimum wage increases on employment, there has been little consensus on the effects of such increases on workers’ broader welfare, and in particular on their health and that of their families. This column analyses comprehensive data from the US on the effects of minimum wage increases on the health of children born to low-income workers. It finds that the increases have a significant positive impact on birth weights. This has important policy implications, with infant health acting as a reliable indicator of future health.
Policymakers in the US have long debated the wisdom of a minimum wage. Recently, there have been several calls to increase the federal minimum wage from the its current value of $7.25 to at least $10.10 per hour and to as much as $15, which is the minimum wage enacted in several large US cities. Evidence on the effects of raising the minimum wage on employment is fairly mixed and is still very much debated despite extensive research, although the Congressional Budget Office (CBO) recently concluded that increasing the federal minimum wage to $10.10 would reduce employment by 0.3% (CBO 2014). In contrast to the effect of the minimum wage on employment, all agree that the minimum wage increases earnings among those who remain employed.
Much less is known about broader impacts of minimum wage increases, for example, on the health of workers and their children. It is plausible to expect secondary effects of the minimum wage because of the significant increase in earnings that it causes. For example, for someone working 2,000 hours per year and earning $7.25 per hour, a $1 increase in the minim wage represents a 14% increase in annual earnings. Income changes of this magnitude may affect many outcomes.
Effects of the minimum wage on infant health are of particular interest because foetal development may be sensitive to income changes during pregnancy, as suggested in studies of other income-enhancing policies such as the earned income tax credit (EITC) (Strully et al. 2010, Hoynes et al. 2015). There are several potential mechanisms for positive income effects on infant health, such as better nutrition, reduced stress, and greater use of prenatal care. Identifying the effects of minimum wage changes on infant health is therefore important for identifying broader and long-run effects of minimum wage policies on health, since early infant health is a strong predictor for long-run health and wellbeing.
We recently examined the effects of minimum wages on infant health by studying how changes in state-level minimum wages affected birth weight, gestational age, and foetal growth in the US between 1989 and 2012 (Wehby et al. 2016). Our data came from the US natality files, which include birth certificate information for the universe of births in the US during this period. Because minimum wage changes primarily affect low-wage earners, we focused on studying low-educated women (high school graduates or less than high school education). We employed a difference-in-differences research design and compared changes in infant health in states that increased the minimum wage to changes in infant health in states that did not increase the minimum wage. The regression-based analysis controlled for state- and year-fixed effects to account for time-invariant differences between states and for common time trends. We also controlled for several state policy changes during this period that are relevant for children’s health including Aid to Families with Dependent Children (AFDC) programme characteristics, whether the state enacted Temporary Aid to Needy Families (TANF), state EITC, expansions in Medicaid income eligibility for pregnant women, and cigarette taxes. Finally, we controlled for the state and year specific mean of the dependent variable (e.g. birth weight) for college-educated, married pregnant women between the ages of 25-39 to capture other state-level changes affecting infant health outcomes since this group is unlikely to be affected by minimum wage changes.
Results from our analysis revealed significant and plausible effects of the minimum wage on birth weight among low-educated women. A $1 increase in the minimum wage increased birth weight by nearly 11 grams. This would suggest that raising the minimum wage from its current federal level of $7.25 to $15 would increase birth weight by 85 grams on average. We also find a significant effect on the likelihood of low birth weight (<2,500 grams), which declines by 2% with a $1 increase in the minimum wage. Such ‘average’ effects are especially meaningful because they mask heterogeneous effects that are larger for groups that are most affected by minimum wages. We were unable to identify individual mothers who were actually affected by the minimum wage and instead, examined groups of women likely to be affected, for example low-educated mothers, although only part of any group would experience an increase in earnings as a result of the minimum wage. These positive effects on birth weight were driven by both an improvement in gestational age, as well as in foetal growth rate (birth weight given a certain gestational age). When we stratified the models by demographic characteristics, we found larger effects among high school graduates, non-whites, and younger mothers – groups which supplementary analyses suggest are more likely to work in minimum wage jobs and thus experience a larger increase in household income from expansions in the minimum wage. To translate these estimates to effects of changes in income from raising the minimum wage among low-educated mothers, we estimated the effect of the minimum wage on household income for this group, and then rescaled the minimum wage effect on health by the effect on household income. This analysis implies an increase in birth weight by 12 grams and a decline in low birth weight by 2.8% with a $1,000 increase in household income. When we estimate these effects for unmarried mothers, we find estimates of the effect of income (from a higher minimum wage) that are very close to those from the federal EITC expansions. Hoynes et al. (2015) reported a 6.4 gram increase in birth weight from EITC-driven income increase by $1000 among low educated single mothers; we find a 9.9 gram increase from $1000 income increase (from a minimum wage rise) for this group. We also examined mechanisms that link income to infant health, specifically maternal use of prenatal care and smoking. We found that raising the minimum wage was associated with greater use of prenatal care, especially among mothers who did not graduate from high school. In this group, both the likelihood of obtaining less than five prenatal visits, as well as the delay in initiating prenatal care, significantly declined. An increase in the minimum wage was also related to a lower likelihood of smoking during pregnancy and smoking more than five cigarettes per day, also with larger effects among mothers who did not graduate from high school. These effects on prenatal care and smoking are also consistent with results from EITC expansions (Hoynes et al. 2015, Averett and Wang 2013). While the direction of income effects on smoking continues to be debated (e.g. Kenkel et al. 2014), the decline we observe may be due to reduced stress from increasing financial security or increased counselling to quit smoking from the greater use of prenatal care. We evaluated several additional hypotheses. While our main analysis examined the effects of minimum wages over the pregnancy period, it is possible that minimum wage changes both prior to and during pregnancy have cumulative effects on infant health. We found evidence for such cumulative effects, which we examined up to three years prior to pregnancy, suggesting that changes in maternal health and household finances prior to pregnancy may also be relevant. We also examined alternative measures of the minimum wage. Our primary measure was the minimum wage normalised to the state median wage in order to capture a greater impact of minimum wage changes in states with a greater proportion of its population who are minimum wage earners. The results were consistent when we used instead the unscaled nominal minimum wage, or the real minimum wage adjusted for inflation. As the debate continues about whether to raise the minimum wage and by how much, our results point to additional impacts of minimum wage policies beyond the effects on labour markets that should be considered by policymakers. Our findings suggest that the income increase for minimum wage earners may have benefits for the health of their infants. The magnitudes of these benefits are meaningful and plausible. There is evidence for at least two potential mechanisms for these benefits, including increased use of prenatal care and a decline in maternal smoking. Other potential mechanisms such as improved nutrition and lower stress (which may partly relate to smoking decline) should also be investigated in future research. See original post for references