CONSEQUENCES OF MINIMUM WAGE INDEXING

During the 1980s, the minimum wage fell relative to prices and average wages in the U.S. economy. If the minimum to average wage ratio had been constant at the level maintained through the 1970s, the minimum wage would have been $5.51 in 1993. If the 1993 minimum wage had increased to $5.51, payments to minimum wage workers would have increased by an estimated $20.3 billion, and the number of people earning that wage would have risen from 2.0 million to 14.7 million. Elasticity estimates generated from other studies indicate that employment would have fallen 240,000 (4.4%) among 16–19 year olds and 349,000 (3.0%) among 20–24 year olds. Wage payments to minimum wage workers would have substantially increased, but the effect on family income distribution would have been small. Many minimum wage workers are children living with parents or adults in a family with other earners. Consequently, 75% of minimum wage workers account for less than half of their family's income.     

CAN SOFT DRINK TAXES REDUCE POPULATION WEIGHT?

Soft drink consumption has been hypothesized as one of the major factors in the growing rates of obesity in the United States. Nearly two-thirds of all states currently tax soft drinks using excise taxes, sales taxes, or special exceptions to food exemptions from sales taxes to reduce consumption of this product, raise revenue, and improve public health. In this paper, we evaluate the impact of changes in state soft drink taxes on body mass index (BMI), obesity, and overweight. Our results suggest that soft drink taxes influence BMI, but that the impact is small in magnitude. ( JEL I18, H75)     

LITERACY AND THE CONSUMER

There is an increasing need for a minimum level of functional competence on the part of consumers and citizens. People must for the sake of their own, their families' and their communities' well-being be able to read and understand information, 60% of which is communicated in print. They must also be able to decode and follow instructions and labelling, and above all react appropriately to warnings. In all parts of the world there is a growing recognition that reading can provide the key to consumer competence, and that the desire for such competence is often a major motivation in seeking out literacy. Unfortunately, much of the information imparted by governments, industries and the professions cannot be absorbed by the majority of people because it is not expressed in ways and terms which they can generally understand. This paper examines some of the failures in consumer communications, which particularly affect those of low reading ability, and points the way to improvement.     

Shelf Registrations and Shareholder Wealth: A Comparison of Shelf and Traditional Equity Offerings

This study examines the effect of issuing common stock on shareholder wealth under two alternative methods of registration, shelf registration under the Securities and Exchange Commission's Rule 415 and the traditional method of registering shares for immediate sale. The stock price reactions accompanying security registrations and offerings over the period from March 1982 through November 1983 are examined for over two hundred issues. A negative price reaction is observed for traditional and shelf registrations for both utility and non-utility issuers. No statistically significant difference is observed between shelf and traditional registrations. Further negative price reactions precede the offerings of these securities.     

Using Market Expectations to Test for Speculative Bubbles in the Crude Oil Market

The wide fluctuations of oil prices from 2003 to 2008 have attracted the interest of academics and policymakers. A popular view is that these fluctuations were caused by speculative bubbles due to the increased financialization of oil futures markets. This hypothesis, however, is difficult to examine since the fundamental price of oil is unobservable and, therefore, econometric evidence in favor of bubbles may actually be due to misspecified market fundamentals. In this paper, we extend two recently proposed methodologies for bubble detection that alleviate this problem by using market expectations of future prices. Both methodologies provide no evidence of speculative bubbles.     

The monetary policy dilemma: Will interest rates have to rise?

UK interest rates are now at their lowest level for more than two decades, and the government is hoping that interest rates can be kept at a low and sustainable level comparable to the 1960s. Indeed, some commentators are calling for still lower interest rates to offset the risk that the £12bn tax increases and cuts in government spending that will come into effect in the next financial year will lead to stagnant consumer spending and a stalled recovery. Against this must be weighed the risk that the recent very good run of inflation figures will prove temporary. Both headline and underlying inflation will be pushed up by indirect tax increases and there is the possibility that wages will follow too, as employees seek to maintain their living standards in a tightening labour market. That risk would point to a much more cautious monetary policy stance and the possibility that the government may need to raise rates from their present level if it is to achieve its inflation objective. The Chancellor faces a clear dilemma. In this Viewpoint, we assess the evidence available to guide him in his decisions and draw out the implications for the future path of interest rates.