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Minimum wage stuff

In this post of a week ago, I invited readers to react to the following claim: if the minimum wage causes unemployment, why don’t states with high state minimum wages have high unemployment rates.

A lively discussion ensued.  Particularly trenchant points were made by:

1. John Dewey (and Don of CrossMolina.blogspot) who argued that the minimum wage only applies to a very small proportion of the work force.  It would be unlikely that the impact on the total unemployment rate.

2. Mark Adams and Eric H and others pointed out that unemployment may not be the right measure.  You might want to look at employment opportunities.  If you can’t find a job and give up you don’t get counted as unemployed.

3.  Steve Bass pointed out that whether a state has a minimum wage is endogenous.  Maybe states with healthy labor markets are more likely to have a state minimum wage.

I think these are the three main points, but a long debate ensued after that, with lots of interesting back and forth.  At one point, Econgeek mentioned the Krueger-Card paper:

Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania
David Card; Alan B. Krueger
The American Economic Review, Vol. 84, No. 4. (Sep., 1994), pp. 772-793.

as the "standard reference in the empirical literature.

That’s half right.  It has become the standard reference for those who don’t believe that minimum wages are bad for the poor.  Whether it’s a reliable source of information is a different question.  It follows, I don’t know, 25 or 50 or a hundred or more papers that found that minimum wages reduce employment opportunities. Is it better than the others?  Maybe.  It might be.  But I’d be worried about basing public policy on one paper that looked at one industry, the fast food industry, using a phone survey eight months after the minimum wage was increased in New Jersey to conclude that minimum wages don’t effect employment for low-skilled workers. I’d worry about whether eight months was a long enough time for people to react to the new law.  And I’d worry about whether the rest of the econometric analysis was done correctly.

I want to thank everyone who contributed to the conversation.  We’ll try another one soon.