The 20th anniversary of the myth that won’t quit

Original Article:

  • Author: Michael Saltsman

  • Publication Date: March 2016

  • Newspaper: The Hill Congress Blog

  • Topics: Minimum Wage

Supporters of a higher minimum wage will gather this Wednesday to celebrate the 20th anniversary of Myth and Measurement, a well-known and controversial text on minimum wage policy authored by economists David Card and Alan Krueger. The best-known research contained in its pages is a 1994 study of an increase in New Jersey’s minimum wage, which reached the improbable conclusion that the wage hike had boosted jobs relative to neighboring Pennsylvania.

As it turns out, this conclusion seemed improbable for a good reason: It wasn’t true. That makes this week’s anniversary celebration for Myth and Measurement misleading at best, and disingenuous at worst.

When New Jersey increased its minimum wage in 1992, it created a natural experiment to study the impact of a wage hike relative to neighboring Pennsylvania. The economists Card and Krueger, working with a team of student researchers, dialed fast food restaurants on either side of the border to collect information on the impact to jobs and burger prices. In a paper published in 1994, the authors reported that employment in New Jersey had increased right along with the higher minimum wage.

Unfortunately, it was soon clear that the economists’ telephone data was in many cases not worth the paper it was written on. (One academic reviewer, writing in Cornell University’s labor journal in 1995, described the New Jersey study as “a monument to poor survey methodology.”) The problem stemmed from, among other things, a failure to properly define terms like “full time” and “part time,” or what constituted a regular hamburger.

The resulting inconsistencies are astounding: The Card/Krueger data reported that one fast food restaurant gained 23 full-time staff in less than a year, while another lost all 30 of its full-time staff in the same time period. Burgers were reported to have increased in price by as much as 88 percent, in an industry where even a five percent price increase is risky. (The aforementioned reviewer suggested that these numbers meant “there is so much random noise in the data that they should be dismissed altogether.”)

The Employment Policies Institute (EPI), where I am research director, documented these problems in analyses released in April 1995 and 1996.  EPI re-collected actual payroll records from one-quarter of the franchised units included in the Card-Krueger study, and found few instances where the telephone survey results matched the payroll records.

Subsequently, economists David Neumark and William Wascher, then of Michigan State University and the Federal Reserve Board, released a detailed independent analysis of payroll records from 230 fast food restaurants in New Jersey and Pennsylvania. Their study, which was later published in the same academic journal where the Card-Krueger paper first appeared, reached a not-so-surprising conclusion: Rather than boosting employment, New Jersey’s mandated wage hike decreased it—much as sound economic theory predicts.

Today, it’s even clearer that the Card-Krueger conclusions in Myth and Measurement were without foundation. In a 2007 summary of the previous two decades of research, the economists Neumark and Wascher found that 85 percent of the most credible studies pointed to job loss following a minimum wage hike. A more recent literature review published by the Federal Reserve Bank of San Francisco, which included the latest and greatest research, still finds clear negative impacts on employment following a minimum wage increase.

The veracity of the flawed Card-Krueger study has become an article of faith on the left, even as the minimum wage debate has moved far beyond levels at which the study’s authors are comfortable. Krueger made news last year when he delivered a gentle rebuke to the “Fight for $15” in the pages of the New York Times, declining to endorse their goal on the federal level. Bill Clinton used the Card-Krueger research to justify a federal wage hike, but today his former top economist at the Labor Department warns that a “$15-hour minimum wage could harm America’s poorest workers.”

For battle-hardened wage warriors, Card and Krueger were just a means to an end. Today, there’s a new generation of nonprofits and labor-aligned academics who will overstate the benefits and ignore the costs in the push for a higher minimum wage. It’s no longer Myth and Measurement—it’s ideology over evidence.