The American Economist

Most studies of the effects of minimum wage laws look exclusively at the labor market. This article investigates the less-researched topic of the effects of a minimum wage increase on enrollment in undergraduate higher education institutions in the United States. With a higher opportunity cost of pursuing an education given a higher minimum wage, potential students may opt to work instead of attend college. Conversely, if an increase in the minimum wage raises the unemployment rate for young workers, more people may enroll in college, as they are unable to find employment. Using restricted geocode variables and panel data from National Longitudinal Survey of Youth (NLSY97) over a period of time in which every state saw an increase in its effective minimum wage, we find that higher minimum wages do correspond to lower levels of college enrollment. We use a multinomial probit model to examine how tradeoffs are made between employment and college enrollment. Finally, we examine the transition path between college enrollment and employment.

JEL Classification : I23, J24, and E24.

This study looks at the determinants of the interurban variation in male and female unemployment in 2009, a recession year and 2014, a recovery year. We hypothesize that the variation in male and female unemployment is informed by different factors or react to these determinants differently. Industrial shifts in employment across the nation are examined, allowing us to gain insight into the unemployment gender gap and its evolution in recent years, especially in the recent business cycle that includes the Great Recession. The use of cross-sectional data makes an original contribution by analyzing how interurban effects might have impacted recent unemployment levels.

JEL Classifications: R10, R64, J16

This article provides a comprehensive analysis of the earnings disadvantage of 21st century immigrants in the United States. The study is the first to decompose the earnings disadvantage faced by recent immigrants to present the channels through which immigrants lag behind their native counterparts. The decomposition of the earnings disadvantage reveals that the time spent in the United States is the key determinant of the earnings disadvantage. Other important sources of the earnings disadvantage of immigrants are the levels of English-language proficiency and educational attainment. The decomposition analysis also suggests that low levels of human capital cause an even larger disadvantage for immigrants in the years following the 2008-2009 recession as compared with the corresponding relative returns of the prerecession period. The decomposition analysis and trends in returns to human capital variables highlight the merits of a selective immigration system that favors young, English-speaking, and highly educated individuals.

JEL Classifications: J1, J3, J6

Closed-system circular flow models have been ubiquitous in economics for at least half a century. Because these models account for neither new-product R&D, nor the attendant leakages and injections, they obscure understanding of (a) the distinction between new-product and process R&D, (b) the circular flow leakages and injections attending new-product R&D, and (c) Schumpeterian “creative destruction” and “swarming.” To shed light upon these matters, we present an open-system circular flow model and a price theoretic explanation of the swarming overinvestment that characterizes business cycle downturns.

JEL Classifications: B20, O31, E30

We create unique patent-based measures of Marshall–Arrow–Romer (MAR) and Jacobs knowledge spillovers using patent citations data and use them to test the Glaeser et al. model of local industry employment growth on three emerging technology categories, namely, computing and communications, drugs and medical, and electrics and electronics. We test growth in 45 U.S. metropolitan statistical areas (MSAs) and consolidated metropolitan statistical areas (CMSAs) for eight two-digit industries over the period 1994 to 2000. We find strong evidence for MAR spillovers from specialization, but little for Jacobs spillovers from diversity. Our results suggest that regional specialization, but not diversity, boosts local industry employment growth in these knowledge fields.

JEL classifications: J21, L16

We discuss a procedure for seasonality analyses of short time-series data with small amplitude. Such analyses are often performed in medical research. In economics, however, time series are typically long and of appreciable amplitude; therefore, economists are used to analyzing such data. Our procedure provides one more tool for the economists’ data-analysis toolbox. We illustrate the procedure’s application with three examples of real economics data. The examples demonstrate that the procedure can be profitably applied to short economics time series.

JEL Classifications: C12, C22, C23, C49, F31

This article discusses the generalized economic theories and policy prescriptions of Leon Hirsch Keyserling. Keyserling himself was a major author of the Employment Act of 1946, which created the Council of Economic Advisors. He became a member of the first council and later the second chair of the council, both during the Truman presidency. Keyserling also openly criticized the now-famous “Accord” of 1951-1952 between the Treasury and the Federal Reserve. Examination of his work and service links Keyserling’s later 16 economic policies to his goal of “constant full employment growth.”

JEL Classifications: E21, E31, E40, E51, N12

The study uses a projection method to identify maximizing and satisficing individuals in a sample of college students from the Philippines. The study defines a maximizing individual as one who sketches a full glass that is filled up to the brim and a satisficing individual as one who sketches a full glass that is filled below the brim. The study also uses data on school domain satisfaction of the college students. The analysis finds that individuals who maximize also experience lower school domain satisfaction.

JEL Classifications: I31, C91

Employing data on offensive-skill players drafted between 2002 and 2013, we are able to determine if the factors correlated with a player’s productivity in the National Football League (NFL) are the same factors correlated with him being selected earlier in the NFL draft. While our findings affirm many of the strategies employed by NFL teams, the analysis uncovers potential avenues for improving drafting strategy. For instance, our results suggest that teams are overvaluing or undervaluing certain player characteristics on draft day. We also compare the performance of our empirical models with that of NFL teams in their ability to project the future productivity of incoming players. We conclude that the NFL teams most likely to enjoy success moving forward are those that are able to combine traditional player evaluation methods with analytical approaches to player evaluation.

JEL Classifications: L83, M51, Z20, Z22

The production possibility frontier (PPF) is a workhorse of economics principles texts, providing useful insights. However, its assumption of a given amount of labor can confuse students, who know that their willingness to supply labor is a variable, not given. That is, some will realize that there are actually many potential guns-butter trade-offs, one for each level of leisure chosen. That unexamined issue can undermine student buy-in to the concepts, and with it, the usefulness of the PPF and economic tools related to it and its “fixed amount of resources” assumption, such as the supply curves of microeconomics and the long-run aggregate supply curve of macroeconomics. However, that difficulty can be addressed using a two-step PPF presentation, which considers the simultaneous goods-leisure decision and the guns-butter possibilities consistent with it. It clarifies the analysis, as well as offering several benefits for economic instruction.

JEL Classifications: A20, A22

The United States has enacted economic sanctions against North Korea since the early 1950s when North Korea attacked South Korea. Can North Korea be pressured into giving up its nuclear weapons? This article discusses the role of economic sanctions as a tool of international diplomacy with North Korea. Using concepts and tools taught in undergraduate economics classes, the article discusses the operation of sanctions and then it applies this analysis to the case of North Korea. The article examines the success that sanctions have achieved in bringing Kim Jong Un to the bargaining table and the difficulties that sanctions encounter in promoting a lasting resolution of the conflict between North Korea and the United States. The article is written for a broad audience of economics students.

JEL Classifications: F0, F1

This study examines the structure and formula for revenue allocation in Nigeria which has been fraught with challenges, proffers solution, and highlights its implications for sustainable national development. The work uses the methodology of Group Unit Root Test, auto regressive distributed lag (ARDL) Bounds Testing and Cointegrating Long Run tests for robust policy recommendations. Using the Gross Domestic Product as the dependent variable and revenue allocation to the three levels of government, and oil revenue as the independent variables, the results from the study show that revenue allocations and the other variables have significant relationship with economic growth in Nigeria. Based on our findings, the study recommends among others that the current revenue allocation formula should be reviewed to embrace autonomy in its entirety to achieve national goals and objectives. Various levels of government should be adequately funded to enable it carry out its expenditure responsibilities to accelerate grass root development.

JEL classification: C22, C32, C58