Friday, September 4, 2015

A Question on Minimum Wage Debates

Dr. Walter Block replies to an email. The email and the response below:


 I've watched a few minimum wage debates that you participated in on YouTube. If you have a few minutes, I have a question regarding the empirical studies that all the minimum wage proponents keep referring to in the debates. Specifically their claim that the empirical studies reveal facts that seem to contradict economic theory.

I have noticed that the empirical studies all occur on a border or in a city or where the reach of the minimum wage policy is sufficiently small enough that the people who are no longer able to find work legally can just cross the border or find a job out of the city. My thought is that because the area of impact is small or if the study is on a border, the effects of minimum wage on employment will be negligible because the workers are just displaced.

I'm aware of the dead-weight loss from a price floor but I suspect the times when people are pushing to raise the minimum wage are times when the floor is sufficiently low so that the dead-weight loss is also negligible.

My question is this. Am I correct about this? Is this a well known fact among economists? If it's true, I would expect that it would be mentioned in the debates but I've not seen this mentioned in any of the debates I've seen, including the ones you participated in. I've watched many debates at this point.

I should mention, I am studying Austrian economics which is how I found you. Thanks for all that you do and I look forward to your response.

Dear C:

I’m gonna blog this with Bob Wenzel, but he’ll keep you anonymous, unless you want him to include your name.

You ask a very important question about those empirical studies that show little or no increase in unemployment due to the minimum wage law. The most famous of these are these two:

Card, David, and Alan B. Krueger. 1994. "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania," American Economic Review, Vol. 84, No. 4, September, pp. 772-793

Card, David, and Alan B. Krueger. 2000. “Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania: Reply,” American Economic Review, 90(5), December, pp. 1397-1420.

For critiques of them see:

Block, Walter. 2001. “The Minimum Wage: A Reply to Card and Krueger,” Journal of The Tennessee Economics Association, Spring

Burkhauser, Richard V., Couch, Kenneth A., Wittenburg, David.  1996.  "Who Gets What From Minimum Wage Hikes: A Replication and Re-estimation of Card and Krueger."  Industrial and Labor Relations Review, 49, no. 3, April, pp. 547-552.

Burkhauser, Richard, and Aldrich Finnegan. 1989. "The Minimum Wage and the Poor: The End of a Relationship." Journal of Policy Analysis and Management. 8.1: 53-71. Web. 18 Apr. 2012. <>. Does not appear in the f

Burkhauser, Richard V. and T. Aldrich Finnegan. 1993. “The economics of minimum wage legislation revisited.” Cato Journal, Vol. 13, No. 1, Spring/Summer, March, pp. 123-130;

Gallaway, Lowell and Douglas Adie. 1995. Review of Card and Krueger's Myth and
Measurement: The New Economics of the Minimum WageCato Journal, Volume 15, no.1, pp. 137-140;

Hamermesh, Daniel and Finis Welch in “Review Symposium: Myth andMeasurement: The New Economics of the MinimumWage,” Industrial and Labor Relations Review, 48, 1995,
pp. 835-838 and 842-848.

Neumark and Wascher, “The Effect of New Jersey’s Minimum Wage Increase on Fast-Food Employment: A Re-Evaluation Using Payroll Records,” Econometrics and Economic Theory Papers, Michigan State University, January 1998, revised and published as “Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania: Comment,”American Economic Review, 90(5), December 2000, pp. 1362-1396

Card and Krueger are relied upon by our friends on the left; but they have been severely refuted by the above. I don’t think your concern is definitive, since most economists, Card and Krueger included, attempt to incorporate geographical considerations such as those you mention. This of course cannot be done perfectly, so your point is an important one, but, at least, this is not ignored.

To me, the major failing of econometric studies in this case (as an Austrian economist I have grave reservations about them all, certainly if they are attempting to “test” rather than illustrate economic law) is timing. The very next day after a minimum wage law is introduced, or raised, we cannot expect too many people to be fired (it is harder to keep track of those who are not hired in the first place) because it takes TIME to adjust to these sorts of things. If the econometric study is timed just right, it can appear to prove that the unemployment effects are not too serious. But, wait a few months, and then you get a different result.

Best regards,


Walter E. Block, Ph.D.
Harold E. Wirth Eminent Scholar Endowed Chair and Professor of Economics
Joseph A. Butt, S.J. College of Business                   
Loyola University New Orleans

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