Law and Labor Markets: Three Essays on Individual Decision Making

Darwyyn Deyo

Major Professor: Thomas Stratmann, PhD, Department of Economics

Committee Members: Donald J. Boudreaux, Walter E. Williams

Buchanan Hall (formerly Mason Hall), #D180
April 04, 2017, 09:00 AM to 06:30 AM


How do individuals change their labor choices in response to new labor laws? The introduction of new laws and regulations may lead individuals to decrease their labor supply, or to change the quality and type of labor they supply. Rational and utility maximizing choices may also lead to unexpected outcomes for lawmakers and individual suppliers. These empirical essays use identification for causal inference and models of individual decision making to analyze how labor market laws influence individuals’ labor choices.

Chapter 1 considers how individual firms respond to differences in occupational licensing, accounting for differences in occupations and local competition. The study includes a difference-in-differences state fixed effects model to analyze whether firms offer higher quality when states require occupational licensing. Firms which face occupational licensing in their state have lower quality compared with firms in states without licensing, and firms in states with licensing exams also have lower quality. There are also diminishing returns to quality from licensing.

Chapter 2 considers whether low-skilled individuals respond to an increase in state minimum wages by seeking income from illegal labor markets. The study uses a city neighborhood and time fixed effects difference-in-differences model and city arrest data for “commercial street crimes” such as prostitution, drug sales, and theft. After an increase in a state minimum wage, arrests for commercial street crimes increase significantly compared with arrests for non-violent traffic crimes. The study also includes an instrumental variable test using the share of Democrat state legislators to instrument for a minimum wage increase.

Chapter 3 considers how U.S. Supreme Court labor market decisions affected the labor supply of entrepreneurs. During the post-New Deal period of the 20th century, the Supreme Court made several precedent altering decisions on labor market regulation which would disproportionately affect the labor supply of entrepreneurs. The study uses a multivariate difference-in-differences model to analyze the effect of precedent altering Supreme Court decisions and finds that these decisions increase the labor supply of entrepreneurs but decrease the share of entrepreneurs, suggesting a decreasing rate of entrepreneurship.