Minimum Honesty on Minimum Wage
Author: Michael Saltsman
Publication Date: August 2013
Newspaper: The New York Post
Topics: Minimum Wage
It tells you all you need to know about the drive to alter New Jersey’s Constitution to hike the minimum wage that the measure’s proponents keep citing a study that was completely discredited more than a decade ago.
Back in 1994, Princeton economists David Card and Alan Krueger claimed that they’d looked at Garden State fast-food outlets in the wake of the state’s 1992 minimum-wage hike — and found that employment increased relative to similar restaurants in next-door Pennsylvania.
But six years later, the Card & Krueger study was debunked in the same economics journal that originally published it.
The Jersey study first gained notoriety when President Bill Clinton cited it in support of his proposal to increase the federal minimum wage in the mid-’90s. The economists’ work provided for a compelling story: Telephoning restaurants in New Jersey and Pennsylvania before and after Jersey hiked its minimum wage, they reported an increase in employment.
But other economists were skeptical. After all, just over a decade earlier, a seven-volume report from Congress’ Minimum Wage Study Commission had established conclusively that each 10 percent increase in the minimum wage reduced employment for young people by as much as 3 percent.
As it turned out, there was good reason to be skeptical. A team of researchers from the Employment Policies Institute (where I’m now research director) collected actual payroll data from 25 percent of the franchised restaurant locations that Card and Krueger had telephoned — and found that the hard info had little resemblance to what the economists (actually, students working for them) had gathered via phone interviews that used an ambiguous set of questions.
The funky data gave the Princeton economists a picture of businesses making implausibly large changes in employment — from zero full-timers to 35 in less than a year, for instance, or from 60 part-time staff down to 15.
EPI presented these results in a hearing before Congress’ Joint Economic Committee, and responsible outfits stopped relying on it. (Where media coverage of the Card-Krueger work once praised as a “most compelling study,” editorials now described it as “snake oil” that had been “dropped faster than a mis-flipped burger.”)
Economists David Neumark (then at Michigan State University) and William Wascher (Federal Reserve Board) followed up with a detailed independent analysis of thereal restaurant payroll data, and published their findings in the same journal where the Card-Krueger study first ran.
Far from boosting employment, they found, the mandated wage increase in New Jersey decreased employment — just as economic theory would predict.
Yet Jersey advocates for a higher minimum wage still cite the study. The liberal think tank New Jersey Policy Perspective recently cited the study as “groundbreaking,” while Rob Duffey of the New Jersey Working Families Alliance wrote in an op-ed last monththat it is “the seminal report on the impact minimum-wage increases have on employment.”
Sadly, some journalists are also playing this game: In recent months, writers in Bloomberg, The Chicago Tribune, The Washington Post and The New York Times have also trotted out the study to support their points.
Perhaps this is understandable — proponents don’t have many good studies to hang their hats on. The vast majority of economic research (including 85 percent of the best studies from the last two decades) points to job losses rather than job gains after a minimum-wage hike.
Which is what makes the advocates’ cynical use of a debunked study so appalling. Unemployment is already 27 percent among New Jersey teens, and 35.5 percent for black teens — and hiking the minimum wage, as the advocates so dishonestly propose, will only make it worse.
Michael Saltsman is the research director at the Employment Policies Institute.