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New Study Casts Doubt on Card-Krueger

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Here’s a second letter that I sent today to the New York Times:

Gary Chaison misses the real, if unintended, lesson of the Russell Sage Foundation study [2] that finds that low-skilled workers routinely keep working for employers who violate statutory employment regulations such as the minimum-wage (Letters [3], September 8).  This real lesson is that economists’ conventional wisdom about the negative consequences of the minimum-wage [4] likely is true after all.

Fifteen years ago, David Card and Alan Krueger [5] made headlines by purporting to show that a higher minimum-wage, contrary to economists’ conventional wisdom, doesn’t reduce employment of low-skilled workers.  The RSF study casts significant doubt on Card-Krueger.  First, because the minimum-wage itself is circumvented in practice, its negative effect on employment is muted, perhaps to the point of becoming statistically imperceptible.  Second, employers’ and employees’ success at evading other employment regulations – such as mandatory overtime pay – counteracts the minimum-wage’s effect of pricing many low-skilled workers out of the job market.

Donald J. Boudreaux