Minimum Wage May Destroy Jobs Overall, In Spite of Card and Krueger

The economists’ consensus about the job-destroying aspect of the minimum wage is less strong than it used to be.  In the late 1970s, 90% of economists surveyed agreed or partly agreed with the statement, "a minimum wage increases unemployment among young and unskilled workers."  By 2003, this percentage had fallen to 73.  Still a strong consensus, but a weaker one than previously. What happened?

The answer:  One major study and a book by economists David Card, now at the University of California, Berkeley, and Alan Krueger of Princeton.  In a 1994 study of the effect of a minimum wage increase in New Jersey, they found higher growth of jobs at fast-food restaurants in New Jersey than in Pennsylvania, whose state government had not increased the minimum wage.  This study convinced a lot of people, including some economists.  It was almost comical to see Sen. Edward Kennedy hype this study when he had never before mentioned any economic studies of the minimum wage.

Based on criticism of their data from David Neumark and economist William Wascher of the Federal Reserve Board, Messrs. Card and Krueger moderated their findings, later concluding that fast-food jobs grew no more slowly, rather than more quickly, in New Jersey than in Pennsylvania.  But they never answered a more fundamental criticism, namely that the standard economists’ minimum-wage analysis makes no predictions about narrowly defined industries.  As Donald Deere and Finis Welch of Texas A&M University, and Kevin M. Murphy of the University of Chicago, pointed out, an increased minimum wage help expand jobs at franchised fast-food outlets by hobbling competition from local pizza places and sandwich shops.

 

For the full commentary, see:

DAVID R. HENDERSON. "If Only Most Americans Understood." The Wall Street Journal (Tues., August 1, 2006): A12.

 

The citation for the article by Deere, Murphy and Welch:

Deere, Donald, Kevin M. Murphy, and Finis Welch. "Sense and Nonsense on the Minimum Wage." Regulation 18, no. 1 (1995).

 

 

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