Monday, March 18, 2019

Obama White House Economist Alan Krueger Dead at 58; Held Odd View on the Impact of Minimum Wage Laws

Alan Krueger and President Obama
UPDATE Below: Family says it was a suicide. 

Alan Krueger, chairman of the White House Council of Economic Advisers during the Obama administration has died at age 58, Princeton University said in a statement.

A professor of political economy at Princeton, Krueger was head of the CEA in the Obama administration from 2011 to 2013, and also served in that administration as the chief economist for the Treasury Department. He served in the Clinton administration as chief economist for the Labor Department.

Krueger held the odd view that minimum-wage hikes don’t lead to job losses and was co-author with David Card of the statistical applications nightmare where that thought they proved their minimum wage case, Myth and Measurement: The New Economics of the Minimum Wage.

The Federal Reserve Bank of San Francisco in a 1996 letter discussed the problems with the methods used by Card and Kreuger in their book:
 Critics have pointed to a number of potential problems with CK’s data and quasi-experimental design. For example, various researchers have expressed reservations about the comparison group being used, whether the estimated effects are biased by employer anticipation of the minimum wage change prior to the “experimental” period, and also by the possibility that the long-run employment impact may be larger than the short-run employment impact. The latter two criticisms–anticipation of the law’s impact, and a larger long-run effect–apply with equal or greater force to CK’s finding that stock prices of low-wage firms were little affected by news of the 1990-91 increase. Also, the survey data collected by CK have some anomalous features that are highly suggestive of measurement error, including large employment changes for some establishments. Such measurement error is likely to bias estimated effects of the minimum wage toward zero, and in some extreme cases may impart a positive bias to the estimated effects (particularly given the small sample sizes).
Furthermore, other recent work reports results that directly conflict with CK. For example, Neumark and Wascher (1992) exploited variation across states in the timing of state minimum wage changes and the degree to which the state minimum exceeded the federal minimum, for the period 1973-1989. By comparing the employment impacts of such changes over time, Neumark and Wascher (henceforth NW) implemented a test of minimum wage effects that is similar in design to the CK estimates based on state-specific changes in minimum wages, but for a longer time period and a larger number of states than in any of the CK tests. NW conclude that there are small negative employment effects of the minimum wage, consistent with the previous generations of time-series evidence. Among other recent work, Deere, et al. (1995), find particularly large disemployment effects of the 1991-91 increases in the federal minimum wage.

Of course, there was a more fundamental problem at a theoretical level with the book it denied the basic law of demand! George Reisman explained in 2007:
[T]oday's liberals have been reveling in the report of increases in the minimum wage unaccompanied by increases in unemployment, and on that basis have abandoned their knowledge that increases in wage rates reduce the quantity of labor demanded and thus do indeed cause unemployment.

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.

Card and Krueger and the "liberal" faithful who are eager to embrace their message may not realize it, but when they claim that increases in the minimum wage do not cause unemployment, what they are denying is one of the best established propositions in all of economics, namely, the Law of Demand.

This law states that, other things being equal, the higher is the price of any good or service, the smaller is the quantity of it demanded, i.e., the quantity that buyers purchase, and that, by the same token, the lower is the price of any good or service, the larger is the quantity of it demanded, i.e., the quantity that buyers purchase. Since wages are merely the price of labor services, the Law of Demand implies that all government and labor-union interference that forcibly raises wage rates above the height at which they would otherwise have been reduces the quantity of labor employers seek to employ in comparison with what it would otherwise have been. It thus implies that the government's or labor unions' interference causes unemployment.


Via the Daily News:

“It is with tremendous sadness we share that Professor Alan B. Krueger, beloved husband, father, son, brother, and Princeton professor of economics took his own life over the weekend,” a statement from his family reads. “The family requests the time and space to grieve and remember him. In lieu of flowers, we encourage those wishing to honor Alan to make a contribution to the charity of their choice.”


1 comment:

  1. Economist with an odd view on economics that committed suicide. Maybe he read another odd view economist's work in that area: Thad Mirer's "Rational Suicide and the Optimal Length of Life" (

    Regardless, though I disagreed with his economics, may he RIP.