The Minimum Wage Revisited

A post by Arnold Kling (askblog) reminds me of a post of mine from 2009. Kling begins noting the Nobel prize that was awarded to David Card and two others. It was Card and his late collaborator, Alan Krueger, who “proved” that the minimum wage doesn’t cause unemployment.

Kling notes that

Noah Smith goes way overboard in praise of the new laureates. He makes it sound as though the results that David Card and Alan Krueger claimed about the minimum wage were only controversial because they were surprising. But they were also controversial because they were wrong.

Here is the abstract of the paper to which the second link in the block quotation leads:

We re-evaluate the evidence from Card and Krueger’s (1994) New Jersey-Pennsylvania minimum wage experiment, using new data based on actual payroll records from 230 Burger King, KFC, Wendy’s, and Roy Rogers restaurants in New Jersey and Pennsylvania. We compare results using these payroll data to those using CK’s data, which were collected by telephone surveys. We have two findings to report. First, the data collected by CK appear to indicate greater employment variation over the eight-month period between their surveys than do the payroll data. For example, in the full sample the standard deviation of employment change in CK’s data is three times as large as that in the payroll data. Second, estimates of the employment effect of the New Jersey minimum wage increase from the payroll data lead to the opposite conclusion from that reached by CK. For comparable sets of restaurants, differences-in-differences estimates using CK’s data imply that the New Jersey minimum wage increase (of 18.8 percent) resulted in an employment increase of 17.6 percent relative to the Pennsylvania control group, an elasticity of 0.93. In contrast, estimates based on the payroll data suggest that the New Jersey minimum wage increase led to a 4.6 percent decrease in employment in New Jersey relative to the Pennsylvania control group. This decrease is statistically significant at the five-percent level and implies an elasticity of employment with respect to the minimum wage of -0.24.

That’s far from the only time that Card and Krueger’s “proof” has been demolished.

I joined the bandwagon in 2009, with an analysis documented in this post, which ends thus:

On the basis of the robust results [derived from data for 1959 – 2009,] I draw the following conclusions:

  • The baseline unemployment rate for 16-19 YO [year-olds] is about 9 percent.
  • Unemployment around the baseline changes by about 1.5 percentage points for every percentage-point change in the unemployment rate for 20+ YO.
  • The minimum wage, when effective, raises the unemployment rate for 16-19 YO by 0.6 percentage points.

Therefore, given the current number of 16 to 19 year old males in the labor force (about 3.3 million), some 20,000 will lose or fail to find jobs because of yesterday’s boost in the minimum wage. Yes, 20,000 is a small fraction of 3.3 million (0.6 percent), but it is a real, heartbreaking number — 20,000 young men for whom almost any hourly wage would be a blessing.

But the “bleeding hearts” who insist on setting a minimum wage, and raising it periodically, don’t care about those 20,000 young men — they only care about their cheaply won reputation for “compassion.”

The minimum wage is just another blow to liberty and prosperity from the left, which holds that Americans must be impoverished to battle the chimera of anthropogenic global warming, that police (who protect the poor as well as the rich) must be defunded, that people should be paid not to work, that the expression of views contrary to leftist dogma is criminal, and that human life may be disposed of like garbage.

One thought on “The Minimum Wage Revisited

  1. When someone argues for the minimum wage, ask them if unpaid volunteer work should be prohibited by law. (What remains of our civilization would collapse in a hurry if it were.) Then ask them why it’s okay for someone to work without pay, but not okay to work for less than whatever the minimum wage happens to be.


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