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I am grateful to Glen Cain, Arthur Goldberger, Mike Lettau, Karl Scholz, Bob Staiger, Jim Walker, and seminar participants at McMaster University for helpful comments, and to the National Science Foundation for financial support.
The economy is a miserable experimental design. Robert E. Lucas, Jr.
The U.S. minimun wage is now $4.25 per hour, and Congress is talking about increasing it. If the minimum were to be increased to $25 per hour many workers would lose their jobs. Cause and effect would be obvious, even to the most jaundiced eye. If the minimum is raised instead to just $5.15 per hour (as the President has proposed) the effect will not be obvious, and much research effort will be devoted to uncovering it. If only Congress could be persuaded to randomize the timing of the increase (perhaps by giving each employer or each local labor market a lottery number with lump sum compensation), we might learn something about the employment effects of minimum wages (although there would still be the problem of predicting the market effect of a general change from the effects of local changes). Alas, legislators tend to view their job as being complicated enough already, and past minimum wage legislation has not made any attempt to facilitate policy evaluation. David Card and Alan Krueger's book, "Myth and Measurement: The New Economics of the Minimum Wage" attempts to disentangle the evidence. The main theme of the book is that legislatures have at times inadvertently generated useful "quasi-experimental" data, and the data give no support to the view that minimum wage increases have reduced employment.
Economists like to complain about their undeserved reputation for disagreeing with each other. After all, most of us agree that rent controls and tariffs and minimum wages have undesirable side effects, and we like to think that our differences are less substantial than the public perception. On the other hand, some of us take a more perverse view. The title of Card and Krueger's book suggests that our agreements are based on theoretical myths, to be dispelled by some new economics to be found inside, although neither the myths nor the new economics are ever explicitly identified in the book itself. Perhaps we deserve our reputation after all.
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