Center for Global Management

STUDYING THE POLITICAL ECONOMY OF MINIMUM WAGES (2022-23)

Anh Nguyen

Ph.D. student in global economics and management (entered 2019)

Labor costs, which include wages, benefits and payroll, are one of the most significant costs of doing business. Thus, a minimum wage policy can have a large impact on businesses and is often one of the biggest concerns of business leaders both regionally and globally, especially for small businesses that operate on a tight budget. Minimum wage policy is among one of the most important factors that a firm needs to consider when evaluating international expansion. Different countries have different levels of minimum wages and wage-setting regimes. Minimum wages also vary across industries, occupations and skills.

Studies have found that the rise of globalization in recent decades has widened income inequality in the U.S. While there is a large body of literature that studies the impacts of minimum wages on employment, distribution of wages and earnings, and on wage inequality, the literature on the political economy of minimum wages is relatively limited. Nguyen’s research studies this though exploring some key questions: Why are individuals in favor of minimum wages, and why do they vote for minimum wage laws? What is the most important factor that influences a legislator’s vote on minimum wage bills, and does globalization affect this? Finally, what could explain the variations of minimum wages across cities and states, and could globalization explain the variations, and if so, to what extent?

The first phase of Nguyen’s research seeks to explain the variations of minimum wages across the U.S. by analyzing individuals’ voting behavior toward minimum wage policies. The main purpose of this analysis is to shed light on the voting mechanisms that influence and decide an individual’s vote when voting on a minimum wage bill. Nguyen gained access to data sets from Harvard University’s Cooperative Election Study, a 50,000-plus national stratified sample survey administered by YouGov, which asked survey respondents about their opinions on the minimum wage policy. Results show that the following groups of individuals tend to support or vote to increase the minimum wage: females, immigrants, low-income families, unemployed workers, union members and members of the Democratic party.

However, the existing survey does not provide significant insight on why an individual decides to support increasing the minimum wage or whether an individual is aware of the potential consequences of the policy. Given this research gap, Nguyen created her own survey, which she hopes will shed some light on these questions and study the link between workers’ skills (or where they are located in the wage distribution) and their support for the minimum wage policy. Responses will reveal changes in preferences of low-skilled and high skilled workers when the minimum wage increases. The survey intends to study not only peoples’ knowledge and perception of minimum wages, but also their perceptions of globalization; its related economic consequences, such as job loss and immigration; minimum wages; and the link between them.

Nguyen received Institutional Review Board (IRB) approval for her research. CGM funding was allocated toward the purchase of Qualtrics research sample services that will be used to distribute her survey and collect responses. This will provide a significant contribution to the progress on Nguyen’s research. She also received matching funding from the UCLA Anderson Behavioral Lab. Nguyen has finalized the sample size and sample quotas, and the survey has now been distributed. Based on the findings, she will next study legislators’ voting behavior on the federal minimum wage bills and the divergences in state minimum wages. She also plans to examine the impact of the North American Free Trade Agreement (NAFTA). Critics of NAFTA argue that it created job loss and immigration, especially in states where manufacturing was concentrated, and has increased income inequality in the U.S. Nguyen’s hypothesis is that a legislator is more likely to vote for an increase in the minimum wage in a state with greater income inequality. She will focus on this in the next phase of her research.

Findings from this project will be of great business and management relevance. Nguyen’s research addresses real-world business, economic and political decisions, and will contribute to the goal of advancing global management thinking from a political economy perspective. This research is part of Nguyen’s doctoral dissertation and will form the basis of her job market paper at the end of the year. She will also be submitting the final paper to various top economics journals and publications.
 

EVALUATING THE BENEFITS IN THE MEDIUM- AND LONG-RUN OF A CONDITIONAL CASH TRANSFER PROGRAM IN URUGUAY
(2021-22)

Matias Giaccobasso

Ph.D. student in global economics and management (entered 2017) (continuation of 2019-20 award)

Governments spend billions of dollars on policies aimed to reduce poverty and inequality. Since the late 1990s, low- and middle-income countries have made extended use of conditional cash transfer (CCT) programs as anti-poverty policy tools. Because they consist of relatively large amounts of cash transferred to poor households and target a large fraction of the population, CCTs are usually expensive investments for governments that typically have tight budget constraints. High-quality empirical evidence about the costs and benefits of public policies should be a key input for decision makers when deciding to implement, continue or eliminate a policy. Unfortunately, this type of evidence is usually unavailable for developing countries, and it is even scarcer if the medium- and long-run consequences want to be assessed. This impairs the quality of the management of public funds, which is particularly critical in contexts where budget constraints are tight and public sector deficits are common. The effectiveness of CCTs has been a controversial topic both within scholars and policy circles.

Giaccobasso’s research seeks to contribute to fill this gap by providing high-quality evidence about the medium- and long-run effects of a particular CCT program in Uruguay and addresses the question, “Do CCTs improve the welfare of the next generation?” The CCT program that is the focus of this research is PANES/AFAM-PE, a large-scale, nationwide CCT program that has been implemented by the Uruguayan government since 2005. The time period under review is 2005-2017, during which time the program reached more than 350,000 households. The program consists of a cash transfer that represents on average one-third of the household income. Participant households must satisfy school attendance, regular health checks and per-capita income requirements. Giaccobasso’s research examines the medium- and long-run effects of this CCT program on several outcomes during the early adulthood of individuals who benefited from the program during their childhood. The outcomes include teenage fertility, enrollment in the education system (secondary and tertiary), labor market insertion and welfare participation, measured up to 15 years after the program was implemented. These outcomes are strongly correlated with poverty and opportunities for mobility, and therefore speak directly to the long-run goal of CCTs. Understanding the effects of these outcomes is key to assessing whether this type of policy is effective and one that governments should continue implementing.

The CGM’s support, a continuation of the 2019-20 award, has provided a significant contribution to the progress of Giaccobasso’s research. Since that time, he has analyzed a combination of administrative records from different government agencies. More recently, Giaccobasso gained access to new data sets. Funding was assigned to research assistance services provided by the NGO Fundacion para el Apoyo a la Facultad de Ciencias Económicas y de Administracion (FAFCEA) to clean, enter and prepare this new data for analysis. These services were key to making progress on this research.

Findings from this project will be of great business and management relevance. Giaccobasso’s research addresses real-world management practices. In particular, new evidence could improve the quality of information and decision-making process in the public sector and contribute to the goal of advancing global management thinking from a public policy perspective. This research is part of Giaccobasso’s doctoral dissertation and will form the basis of his job market paper at the end of the year. He will also be submitting a final paper to various top economics journals and publications.
 

YOU ARE NOT WELCOME: CAUSES AND EFFECTS OF NATIONALISTIC SENTIMENT TOWARDS FOREIGN FIRMS (2020-21)

Pedro Makhoul

Ph.D. student in strategy (entered 2017) (continuation of 2019-20 award)

Over the past few years, there has been a significant rise in populism and nationalistic narratives around the globe. For companies looking to expand or increase operations overseas, this is one more obstacle to overcome. Nationalistic rhetoric fosters the idea of “us versus them” and thus makes it harder for both trade relationships (imports and exports) and foreign firms operating overseas (multinationals) to function properly. Management scholars have long discussed the idea that foreign firms trying to do business abroad experience some disadvantages vis-à-vis domestic firms. This concept is known as “liability of foreignness” (LOF), and its sources can be broadly categorized into two types; namely, the costs associated with an unfamiliar environment hazard and the costs related to a discrimination hazard.

Pedro Makhoul’s research seeks to contribute to the discrimination hazard and mergers and acquisitions (M&A) literature in three main ways: first, by directly measuring the nationalistic sentiment across four U.S. states using experimental methodology to quantify the anti-foreign sentiment in each of these locations; second, by understanding how public opinion influences real business outcomes when it comes to the context of foreign acquisitions; and third, through an enhanced understanding of the origins of nationalistic sentiments and where anti-foreign sentiment stems from.

The CGM’s support, a continuation of the 2019-20 award, has provided a significant contribution to the progress of Makhoul’s research. Last year, the experimental component was approved by UCLA’s Institutional Review Board (which reviews the conduct of research using human subjects), and much of the data collection on the four states (California, Massachusetts, Minnesota and New York) as well as immigration and M&A data gathering was completed. Funding over the two years has been paramount in kick-starting the experimental part of the research. Funding has been used to distribute surveys and collect large sample data through online survey platforms, such as Amazon’s Mechanical Turk and Lucid, and enabled Makhoul to explore regional variation within the U.S. and draw inferences.

Preliminary regressions show a statistically significant difference between the implicit valuation of acquisitions made by foreign versus domestic firms (foreign firms appear to pay a larger premium to acquire U.S. firms). Preliminary findings from online experiments also suggest there is heterogeneity both within and across states on the likelihood of an individual choosing to veto a foreign acquisition of a U.S. firm. Furthermore, the data suggests that immigration patterns from the mid-19th century play a role in shaping people’s perceptions to this day.

Findings from this project are of great business and management relevance. Makhoul’s research addresses fundamental questions for companies seeking to expand operations abroad; namely, what are the costs and disadvantages of doing business abroad and entering foreign markets, and how will these barriers affect operations and profits? This research is part of Makhoul’s doctoral dissertation and will form the basis of his job market paper at the end of the year. He will also be submitting the paper to various top economic and strategy journals and publications.