Monday, January 4, 2016

Tyler Cowen on the Two Economists That Lefties Use to Prop Up Their Minimum Wage Hike Advocacy

George Reisman correctly calls the two 'liberal faith healers":
The liberals' faith healers in this instance are David Card and Alan Krueger, who are the authors of a book called Myth and Measurement: The New Economics of the Minimum Wage (Princeton, N.J.: Princeton University Press, 1995, 422 pp.). Their book is described by its publisher as presenting "a powerful new challenge to the conventional view that higher minimum wages reduce jobs for low-wage workers... [U]sing data from a series of recent episodes, including the 1992 increase in New Jersey's minimum wage, the 1988 rise in California's minimum wage, and the 1990-91 increases in the federal minimum wage...they present a battery of evidence showing that increases in the minimum wage lead to increases in pay, but no loss in jobs."

Here is lefty Rob Wile using the Card and Krueger study:

Last week, tens of thousands of fast food workers went on strike to protest their current wages, bringing the debate over raising the minimum wage back into relief.
Opponents of doing so argue that it would by definition increase unemployment.
But Berkeley's David Card and Princeton's Alan Krueger, who also recently stepped down as chair of the White House Council on Economic Advisers, have twice shown that that is not necessarily the case.
In their 1994 study Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania, the pair surveyed whether an increase in New Jersey's minimum wage reduced employment at fast food restaurants by comparing it with seven border counties in Pennsylvania.
The evidence showed New Jersey's new $5.05  wage floor, enacted in April of 1992, was actually correlated with an increase in employment, and at a minimum did not negatively affect it.
In 1998, they came back to the question in another study, this time using BLS data, as well as findings from a study that refuted that initial data. A total of 687 restaurants were examined.
They basically found the same thing again, writing:
The increase in New Jersey's minimum wage probably had no effect on total employment in New Jersey's fast-food industry, and possibly had a small positive effect.

What's really going on is that Card and Krueger studied what were minuscule hikes in a specific sector. Amazingly, Krueger admitted this in a 2013 interview with PBS:

[I]t turns out, you don’t have to raise prices that much to offset the higher costs of a minimum wage increase. What we found was that about a 3 percent increase in the price of fast food was enough to compensate the employers for the higher cost of labor as a result of the minimum wage increase.

A 3 percent increase in prices is hardly noticeable to most customers. So that’s one reason why you don’t see much of an effect on the product demand side: There isn’t a reduction in people going to the fast food restaurants when the minimum wage increases.

And I would also add, that customers accept it. If they’re told, “Look, prices went up because the minimum wage increased. It’s not that we’re being greedy; It’s that we’re required to pay higher wages,” I think that they are willing to accept that kind of a price increase. That’s one factor that the higher prices helps to offset the cost of the minimum wage.
They know that they were playing with minuscule changes. Here is some of the back and forth during the PBS interview:
Paul Solman [PBS]: How high can you jack up the minimum wage before you start discouraging employment? Why shouldn’t Wal-Mart — why shouldn’t all big box stores — be required to provide full healthcare benefits, for example? How far can you push this?
Alan Krueger: That’s a really good question. And David Card and I, in our book, “Myth and Measurement: The New Economics of the Minimum Wage,” tried to look very hard for the tipping point. I think that there is a level at which the conventional effects dominate — when the minimum wage goes too high and employers cut back on employment.
Beyond this, there  have been questions about the methodology used by Card and Krueger.

Notes Lachlan Markay:
[T]hose findings were touted far and wide by liberal politicians, including Bill Clinton’s Labor Secretary Robert Reich and the late Sen. Ted Kennedy (D-MA), as evidence of the beneficent economic effects of a higher minimum wage.
But subsequent reviews of the study showed fatal flaws that undermined its findings. In 1996, a review of the study by the Employment Policies Institute found that the data sets Krueger and Card used were so badly flawed that “no credible conclusions can be drawn from the report.” Specifically, the study found, “the data set used in the New Jersey study bears no relation to numbers drawn from payroll records of the restaurants the New Jersey study claims to cover.”
Rather than look at those payroll records, Krueger and Card called fast food managers in New Jersey and Pennsylvania to ask about changes in employment at their restaurants. But not only did the data they obtained inaccurately reflect changes in fast food employment in the two states, according to the EPI, about a third of their data points got the direction of hiring wrong – that is, the data showed restaurants reduced employment when they actually increased it, and vice versa, during the period measured.
The actual payroll records told a very different story. When David Neumark and William Wascher re-evaluated the study, they found that data collected using those records “lead to the opposite conclusion from that reached by” Card and Krueger.
This, of course, is in addition to the faulty application of the methodology of the natural sciences in a social science. That this faulty methodology is used is admitted in the blurb to the book:
 A distinctive feature of Card and Krueger's research is the use of empirical methods borrowed from the natural sciences, including comparisons between the "treatment" and "control" groups formed when the minimum wage rises for some workers but not for others.
In other words, there are multiple problems with the book from both theoretical and empirical directions, but it has become the cited book for lefties attempting to support the evil minimum wage.

So what does Tyler Cowen, of the Koch-funded  George Mason University think about the work of these two and their sloppy misleading work on the minimum wage? He writes today:
I believe Card and Krueger will and should win Nobel Prizes...



  1. To differentiate Cowen from us thoughtless fringe crazies, Matthew Yglesias once described Cowen as a “thoughtful, mainstream libertarian”. That will get you into the NYT, right?

  2. It just goes to show that as long as you're serving the interests of govt and the accompanying elite no amount of discrediting is enough. They'd have to outright publicly refute their own study for it to be finally dead and buried as it deserves. Disgusting.

    1. Even if they did refute their own study it wouldn't make a difference. It's not like the political left cares about objective facts. What they care about is a story that moves the agenda forward.

      It's always all about advancing the statist agenda. Leftists know that lies are more effective than the truth, which is often too complex and subtle for the average dipshit voter to comprehend.

      Lying works, which is why propagandists, demagogues and "progressive" activists do it so often. Never forget that the practical aim of politicians is to find the lies voters want to hear and tell them those lies over and over and over.

  3. So if Rand by some miracle got elected, he could be his new economic adviser. Maintaining that mainstream libertarianism.
    BTW, your comment window flags "libertarianism" as a misspelling.

  4. Cargo Cult Regulation -- How Much Effect Did Card and Krueger Have on New York's Fast Food Minimum Wage Ruling?

    A short, clear analysis of another factor.
    === ===
    [edited] Card and Krueger specifically looked at the effect of the minimum wage on large chain fast food stores. They found that employment at these restaurants went up when the minimum wage increased for all businesses in New Jersey.

    When a minimum wage is raised [or any cost is imposed], often the largest volume and highest productivity companies will absorb it the best. I think this is the most powerful critique of C+K.

    The minimum wage slammed employment in small ma and pa restaurants, driving business to the larger volume restaurants and chains. As a whole, the industry probably saw a net loss in employment and a shift in employment from smaller to larger firms. Card and Krueger completely missed what was going on by measuring only the effect on larger firms.
    === ===

    Large companies and associations sometimes beg for regulations of certain types. They want rules which may cost them more, as long as it costs much more for their main competition or sets a barrier to entry.

    You may want to start a small restaurant staffed by family and friends. This may be impossible if you must start out paying a high, minimum wage.