Tom Heintjes: Welcome to another Economy Matters podcast. I'm Tom Heintjes, managing editor of the Atlanta Fed's Economy Matters magazine. Today, we’re joined by Melinda Pitts, an economist at the Atlanta Fed and the director of the Atlanta Fed's Center for Human Capital Studies. Melinda coauthored a research paper examining the relationship between changes in the minimum wage and rates of youth drinking and driving, and she's agreed to discuss her research with us. Melinda, thanks for joining us.
Melinda Pitts: Thanks for having me.
Heintjes: When I saw your paper, Melinda, I was intrigued by the subject matter and I have to confess that I never thought about a correlation between what a young person earns and how much he might drink and drive.
Pitts: I often try to find unintended consequences of policies. I think it's fascinating how nothing happens in a vacuum, and changes in policies can impact seemingly unrelated behaviors and outcomes.
Heintjes: Well, on the face of it, I guess it makes intuitive sense to think that young people might drink and drive with more money in their pockets. Is that the logic behind that body of research in general?
Pitts: Exactly. Alcohol is a normal good, i.e., if you have more income, you are going to increase consumption of normal goods. So you should see an increase in alcohol consumption if young people have more money. Then, that would lead to more alcohol related accidents and deaths, possibly. In a paper in the Review of Economics and Statistics, coauthors Adams, Blackburn, and Cotti found a correlation between increases in the minimum wage and drunk-driving fatalities for teens, thus suggesting that there was an unintended consequence of raising the minimum wage, which was more deaths. So their mechanism was that the minimum wage increases net income of teenagers. This income increase led to increased consumption of alcohol, which is a normal good, and this increased consumption of alcohol leads to more drunk driving and more drunk driving-related deaths.
Heintjes: Melinda, you refer to alcohol as a normal good, just now and also in your paper. For those of us who are not economists, what is a normal good?
Pitts: A normal good is a good where when your income goes up, you are going to consume more, so alcohol is a normal good and as income increases, we see an increased consumption of alcohol.
Heintjes: So what led you to follow up the earlier research in this area with your new research? Oh, and I should mention your coauthors: Joseph Sabian and Laura Arges.
Pitts: We were interested in understanding the causal channels of this outcome. In their paper, Adams, Blackburn, and Cotti find this great relationship between minimum wage increases and drunk-driving fatalities, but they did not explore the channel of that happening. Was it through increased alcohol consumption? Increased money? What was the cause? It is not clear in the minimum wage literature that increases in the minimum wage actually lead to increases in income for teens, because it can lead to reduction in hours or decline in employment as employers find it more costly to hire minimum wage workers relative to other workers. There can also be other reasons for the outcome that was found in that paper. It could be that, because they are working less, they have more time for social activities, or that they have more stress because they don't have income. So we really wanted to explore what was the channel through which this correlation between minimum wages and alcohol-related fatalities were occurring.
Heintjes: In fact, in your paper you find evidence that increases in minimum wage are actually associated with declines in alcohol consumption, which is a little counterintuitive to earlier findings. How do your findings differ from existing research into this matter?
Pitts: Well, first we found a lack of evidence. We did not find a positive association between minimum wage and earnings of teens, which does fit in with some of the literature. We found that, on average, earnings went down for most teens because they had their hours cut or because employment was going down. We also found no evidence that higher minimum wages increase net alcohol consumption of teens, either on the extensive margin, which means didn't affect whether they drank at all, or at the intensive margin, how much they drank if they did drink alcohol. In fact, we even found some evidence of declines in drinking. So, we think we are kind of the first to explore this relationship between minimum wage and drinking, but this almost seems a necessary channel to relate minimum wages to drunk-driving fatalities.
Heintjes: Well, let me ask you this, Melinda—could attributing rates of youth drinking and driving to the minimum wage possibly eliminate a number of other potential factors that could be at work? For example, you researched an interesting consideration that increases in the minimum wage might make a person's time more potentially valuable, which could perhaps lead them to drive less safely, fail to wear a seatbelt, maybe try to squeeze through that yellow light to get to work to get on the clock. Were these behaviors much of a factor in your data?
Pitts: Just for the reasons you mentioned, we wanted to explore seatbelt usage in order to find another channel through which minimum wages could lead to increased mortality without making alcohol the cause. The rationale behind looking at seatbelt usage is that it's time intensive to use a seatbelt; it takes time. If the value of your time goes up because you want to—like you said—you need to get to work or your time is more valuable because you make more, the increased income could lead to declines in safe driving behavior. But we found no relationship between the minimum wage and risky driving behavior. So that kind of eliminated that channel toward that relationship between mortality and minimum wage.
Heintjes: What sort of data could you look at for seatbelt usage?
Pitts: We use two data sets that are provided by the Centers for Disease Control and Prevention, the CDC. There is the YRBS, which is the Youth Risky Behavior Survey and the BRFSS, which is Behavioral Risk Factor Surveillance System. In both of these surveys, they ask questions about risky behavior. The seatbelt usage was only in the BRFSS, which is the adult behavioral survey.
Heintjes: Despite what you found in your research, are there channels through which a researcher could plausibly correlate the minimum wage with teenage drunk driving?
Pitts: Given what we found, for minimum wage hikes to increase net drinking and thus net mortality, the winners for minimum-wage hikes—those who maintain their jobs and hours and actually receive an earnings increase—must be more likely to spend their extra income on alcohol than the losers—those who lost income from the increase—or to cut back on their drinking. In other words, the distributional consequences are important. If the winners increase by more than the losers, then we could possibly see that effect, but that is a very narrow channel between this relationship.
Heintjes: In the larger debate about the minimum wage, which is in the news a great deal currently, the argument that raising it would increase youth drinking and driving—I'm inferring from what we're talking about—is not one you would give a lot of weight to.
Pitts: No, we feel it's just really too soon that the evidence is not strong enough to associate changes in the minimum wage with drunk-driving fatalities.
Heintjes: I want to be sure to note that we have a link to Melinda's paper on our website, frbatlanta.org, and I hope you'll check it out. It's very interesting and there are a lot of great insights there about human behavior. Melinda, thanks for spending some time with us today. I really enjoyed our conversation.
Pitts: Happy to be here.
Heintjes: And that brings us to the end of another Economy Matters podcast. I hope you'll join us next month when we'll journey into the past with Atlanta Fed economist, Will Roberds. We'll discuss Will's research into the Dutch bank florin, which was once the dominant reserve currency across much of Europe. But what happened to it, and why is it largely forgotten today? I hope you join us next month to find out.