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Minimum Wage Effect on Small Businesses

Minimum Wage Effect on Small Businesses. a presentation by Lindsey Terry. The Issue.

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Minimum Wage Effect on Small Businesses

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  1. Minimum Wage Effect on Small Businesses a presentation by Lindsey Terry

  2. The Issue • Mandatory wage increases hurt not only small businesses, but their employees as well. Big corporations do not have to absorb the cost because most minimum-wage jobs are offered by small businesses. Government manipulation of the starting wage has failed as tool of social and/or economic justice. It has not been proven to reduce poverty or narrow the income gap and puts a stranglehold on America's top job creators: small businesses. The overwhelming majority of economists continue to affirm the job-killing nature of mandatory wage increases. Mandatory minimum-wage increases end up reducing employment levels for those people with the lowest skills. (NFIB, National Federation of Independent Business )

  3. The Research Question: • What are the effects of increasing minimum wages in regard to its effects on small businesses?

  4. The Dependent Variable • Each state’s # of small businesses

  5. The Independent Variables • Each state’s minimum wage X1 • Each state’s population growth rate X2 • Each state’s per capita income X3 • Each state’s percentage change in real gross state product X4 • Each state’s population X5

  6. The Sources and Data • SBA (United States Small Business Association sba.gov) • US Department of Labor dol.gov • US Bureau of Economic Analysis bea.gov • 2005 information

  7. # of Small Businesses

  8. Each State’s Minimum Wage

  9. Each State’s Population Growth Rate

  10. Each State’s Per Capita Income

  11. Each state’s Population

  12. The First Attempt

  13. The Problem • Glejser Test ran positive for Heteroscedasticity!!

  14. The Solution • Put the dependent variable in terms of population and eliminate population and as an independent variable

  15. The Second Attempt

  16. The Results of the Second Attempt • No Heteroscedasticity (YAY!) • Lower R-Squared (went from .98 to .19)  • Per Capita Income (X3) only significant independent variable • 3rd Attempt - Restricted Regression (that is, dropping all variables except X3)

  17. The 3rd Attempt(Restricted)

  18. The F Test

  19. The Results of the F-Test • R2(ur)=.1982 n=51 k(ur)= 4 • R2 (r)=.1743 n=51 k(r)=1 • m= k(ur)-k(r) = 4-1=3 • F = (.1982-.1743)/3 (1-.1982)/(51-4) F=.47 • F=.47 • Not Significant • At less than 10% • Adding the 3 exp. var. does not significantly increase explanatory power

  20. The Conclusions • Drop Excess Variables for BEST regression • Y= 44.97+0.0012X • Holding other variables constant, for every change in per capita income there is a positive .0012 change in the number of small businesses. • Results not definitive • Question of Reverse Causality (the states that adopted minimum wages were those states that were less expected to suffer adverse effects) • Further Research is needed to find the factors that could influence small business success

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