Pro-hike interest groups have propped up one study over the decades to make their case for ever-higher increases to the minimum wage – and economists have continually debunked it. Yet incredibly, the Royal Swedish Academy of Sciences chose author David Card to receive the Nobel Prize in Economic Sciences this year, citing this 1994 study on New Jersey employment after a minimum wage increase for its “empirical contributions to labour economics.”
The study in question, co-authored by the late Alan Krueger, had college students calling store managers and assistant managers at quick service restaurants in New Jersey before and after a state minimum wage increase. The data they sought was the number of full and part-time people employed. They also called stores near the NJ border in neighboring Pennsylvania which had not implemented an increase. The authors concluded that the New Jersey hike had increased employment, diverging from decades of minimum wage research.
What was described as a major development in labor economics was actually driven by imprecise methodology, and was refuted when reviewed by other economists. The Employment Policies Institute’s analysis of a sample of Card & Krueger’s surveyed restaurants showed illogically large variances in the Card & Krueger data for individual locations, such as one restaurant going from 0 to 35 full-time employees in less than a year, and others dramatically losing part-time employees. In many cases, the data collected by Card & Krueger had no relationship to the actual payroll records acquired by EPI. The EPI report attributed the mismatch to poorly designed survey questions that failed to clearly define “full-time” and “part-time” employees. Instead, these payroll data provided an opposite conclusion from the 1994 study: New Jersey had in fact lost jobs as a result of the minimum wage policy.
Subsequently, Drs. David Neumark (Michigan State University) and William Wascher (Board of Governors for the Federal Reserve) conducted an independent analysis of real-time payroll data from a larger sample of Card & Krueger’s respondents, and similarly found drastically different results. Based on these data, they estimated the New Jersey wage hike did indeed cost jobs – showing a 4.6% decrease in New Jersey employment relative to Pennsylvania.
More recent economic analyses and government projections have further solidified this principle – Card & Krueger were mistaken, and minimum wage hikes historically have caused significant employment loss. After proposals to raise the federal minimum wage to $15 per hour, the nonpartisan Congressional Budget Office twice estimated doing so would cost millions of jobs nationwide. In a review of three decades of minimum wage research, a National Bureau of Economic Research publication by Neumark found an irrefutable majority of studies over the years agree minimum wage hikes cause employment loss.
Former Clinton economic advisor and Obama National Economic Council director Gene Sperling urged President Clinton to avoid an “aggressive” wage hike proposal in 1998, which he argued would “prove damaging to the employment prospects of low-skilled workers, as well as to the general macroeconomic performance of the economy.”
Krueger himself argued in 2015 that more than doubling the federal minimum wage to $15 per hour would put the nation in “uncharted waters,” causing “unintended consequences.”
While Card’s 1994 study certainly made a splash, reviews and studies following his findings saw through the poor methodology and misleading conclusions. Despite a clear majority of research that points to the harmful effects of minimum wage hikes, the Nobel Prize committee continues to give CPR to a discredited argument.