Jon Gertner’s cover article in today’s New York Times
Magazine offers no surprises. It’s as
predictable as what you’ll read here.
Gertner reports on the movement for a “living wage” – a movement working
mostly at the local level, trying to persuade local governments to legislate
minimum wages well above the national minimum wage of $5.15 per hour.
Of course, Gertner mentions the famous (or infamous) 1995
study by David Card and Alan Krueger in which the authors claim to find
evidence that a hike in New Jersey’s minimum wage caused no fall in employment
and might even have caused employment to increase. Card and Krueger are quoted, each predictably insisting that their data
exposes the error in the standard economists’ analysis in which legislated
minimum wages increase unemployment among low-skilled workers.
Gertner makes no mention of the many critical responses to Card’s and
Krueger’s study. (He does quote critic
David Neumark – once – but only on the success of the political movement for
‘living-wages,’ not on the Card-Krueger study.) A good summary of the criticisms of Card-Krueger is this essay by
Donald Deere, Kevin Murphy, and Finis Welch. (I must also recommend this outstanding blog-post by my colleague Bryan Caplan, over at EconLog.)
Maybe Gertner can be forgiven, for Krueger told him that (in
Gertner’s words) “Some recent surveys of top academics show a significant
majority now agree that a modest raise in the minimum wage does little to harm
employment.” If a “significant majority”
of “top academics” accepts the Card-Krueger finding, why bother to talk with
the lunatic fringe who cling to the archaic superstition that higher minimum
wages cause greater unemployment?
But look more closely at what Krueger told Gertner – namely,
“top academics” (we’ll assume those to be economists and not sociologists and
experts on French literature) “agree that a modest raise in the minimum wage
does little harm to employment.”
It seems as if Krueger is saying that economists now agree
that “modest” increases in the minimum wage are justified, or at least not
harmful. That is certainly Gertner’s
reading of Krueger’s meaning.
But taken literally, the economist consensus that Krueger
reports is neither new nor inconsistent with the traditional understanding that
higher minimum wages reduce employment. This understanding has nothing to do with the extent of the effect that
higher minimum wages have on employment; it has to do with the direction of the
effect: higher minimum wages, lower rates of employment of un- and low-skilled
workers.
Because more than 95 percent of American workers have skills
sufficient to enable them to earn wages higher than the federal minimum, any “modest
raise in the minimum wage” is unlikely to have an effect on employment that is
more than modest.
But let’s assume that Krueger really means something more
substantive – namely, that economists have been wrong to assert that higher
legislated minimum wages increase unemployment – and that, therefore, the
economists’ case against the minimum wage is without merit. (Again, this meaning is the one that Gertner
takes from Krueger.)
Because there are margins other than pecuniary wage rates
upon which employers and employees can adjust, it’s possible that higher
legislated minimum wages don’t so much reduce employment as reduce the quality
of available employment. Most obviously,
employers of low-skilled workers can reduce (or not increase) fringe benefits,
or they can work their employees harder (thereby extracting more output per
hour from them).
If the brunt of employer and employee adjustments to higher minimum
wages take place on these non-wage-rate margins, even the finest empirical
studies will show little or no effect of higher minimum wages on the rate of
employment.
But it would still be a grotesque error to conclude that
low-skilled workers are generally better off as a consequence of the higher
minimum wage.
Share
Podcast RSS Feed
Full EconTalk Text
