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A couple of tweets about the general equilibrium effects of multiple big states raising their minimum wage. Applied economists included year fixed effects in such regressions. We do not offer a theory of what determines these fixed effects (1/2).
(2/3). I posit in a regression where the unit of analysis is an establishment/state/year, a regression of employment on controls and B*state minimum wage + U would yield different year fixed effects if many states have raised their minimum wage in the last decade. Why? Robots.
(3/4) If multiple states raise their minimum wage (MW), then robot substitutes for low skill labor are induced. This shift in the isoquants, allows future firms to employ robots => the statistician recovers a larger "B" in the "effects of the minimum wage" regression.
(4/4) A negative labor externality arises. As one state implements a higher minimum wage, this imposes costs on low skill workers in other states because the probability that aggregate demand for robots increases goes up. Such demand induces new robots that displace labor
