By Stephen Herzenberg
The death of Princeton economist Alan Krueger last week brought back into the national news stories about his pioneering data-driven research, some of which showed that job growth does not suffer when states raise their minimum wage.
I met Alan when we were both at graduate school and then again in his first stint in Washington, D.C., as chief economist of the U.S. Department of Labor. He was soft spoken but intense, with a passion for designing creative empirical research and letting the data lead where it led.
The most famous example was his analysis of state minimum wage increases with fellow-economist David Card. Krueger and Card seized on a “natural experiment” that resulted when New Jersey increased its minimum wage in the early 1990s.
The researchers conducted a phone survey of fast-food restaurants in neighboring parts of Pennsylvania and New Jersey, just across the border from each other and with similar economic environments.
Using neighboring Pennsylvania fast food restaurants as a “control group” enabled the researchers to attribute any difference in fast food employment growth in New Jersey to the minimum wage increase. The found no difference in fast food job growth between the two states.
This research drew attacks from conservative critics financed by and relying, it turned out, on data manipulated by a restaurant industry think tank. Krueger and his co-author obtained administrative payroll data from New Jersey and Pennsylvania and confirmed their original findings.
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Since the original Card and Krueger study, its basic approach has been replicated on a larger scale with better data. One 2010 study compared neighboring counties along every state border in the country, capitalizing on the many cases of one state increasing a minimum wage while another one didn’t.
The authors found that a higher minimum wage had a positive effect on employment, albeit a small one, that researchers could not be confident was bigger than zero.
Last year, a controlled natural experiment study of six cities on their way to $15 per hour—co-authored by Elk County’s own Sylvia Allegretto (in Berkeley now but we’re trying to bring her home)—found that wages increased nearly 2 percent for each 10 percent increase in the minimum wage.
Meanwhile, employment was essentially unchanged (although it increased slightly at the midpoint of a range of estimates).
Twenty years ago, Card and Krueger’s findings—what they called “the new economics of the minimum wage”—mystified many economists, inculcated from their first course in graduate school that a higher minimum wage always leads to job loss.
Today, empirically oriented economists—the ones that still live in a pre-post-fact world—are less mystified, recognizing that low-wage labor markets don’t operate like the textbook says.
Large low-wage employers have significant “market power” and use that market power—augmented by, for example, non-compete agreements that forbid workers from moving to another fast-food restaurant for 50 cents more—to suppress wages.
Raising minimum wages pushes back against wage suppression and puts more money in the pockets of low- and moderate-income families.
A higher minimum wage also creates jobs by reducing the number of unfilled job openings at low-wage employers—better pay reduces quits and makes it easier for employers hire new people when the old ones leave.
The fact that many economists now accept where the data on the minimum wage leads explains why the Keystone Research Center, which I lead, was able to issue a statement earlier this month, announcing that 38 Pennsylvania economists and other social scientists endorse a proposal before the Pennsylvania legislature to increase the state’s minimum wage to $15 per hour and to eliminate the tipped minimum wage.
Of course, some other voices, not so interested in where data that hasn’t been cooked leads, hold firm to “the old economics of the minimum wage.”
These voices don’t want a higher minimum wage regardless of its impact on jobs and the families of low-wage workers. In fact, at a recent Pennsylvania House (mis-)informational hearing, two of their spokesmen, libertarian economists, said they don’t even believe we should have a minimum wage.
For those not wedded by philosophy and narrow self-interest (greed) to opposing a higher minimum wage, thanks in part to Alan Krueger and his legacy, the jury is now in: Pennsylvania lawmakers can raise the state’s minimum wage and be confident that it will boost workers’ incomes, reduce poverty, and sustain—not undercut—state job growth.
Stephen Herzenberg is an economist and the executive director of the Keystone Research Center, a progressive think tank in Harrisburg.