From Kevin Williamson at National Review, Magical Thinking about Minimum Wages
When Economics 101 tells you something you don’t want to hear, the thing to do is to commission a study. As Ronald Coase observed: If you torture the day enough, it will confess to almost anything. For progressives desiring to raise the minimum wage in spite of the consequences predicted by basic economics, that study came from two Princeton economists, David Card and Alan Krueger, who in 1994 compared employment at fast-food restaurants in New Jersey to that of their counterparts across the river in Pennsylvania after New Jersey enacted a relatively modest increase in the minimum wage. The Card-Krueger study found that raising the minimum wage had not cost jobs in New Jersey. There were many problems with the study: It used fast-food employment as a proxy for minimum wage even though most fast-food workers do not make the minimum wage; it ignored workers in other industries, such as hospitality, that might have been more strongly affected; it covered a relatively short period of time; it relied on telephone surveys of restaurant managers rather than on hard employment data.
The Card-Krueger study included only a few months’ worth of data from after the time the minimum-wage hike went into effect. Some economists suspected that while fast-food operators were unlikely to simply start hacking away at their staffs in the months following an increase in the minimum wage (which, again, would not affect the wages of most fast-food workers), they would instead change their medium- and long-term plans, choosing less labor-intensive modes of production, substituting capital for labor through automation, reducing hours to make their labor consumption more efficient, etc. And that is, in fact, what subsequent studies found: Restaurants didn’t just start firing people after the minimum wage went up, but the wage hike did significantly reduce future job growth and labor consumption.
Diana Furchtgott-Roth, formerly the chief economist at the Labor Department, offered a different criticism: “The regression statistics explain little variance, and practically none of the coefficients are significant. Card and Krueger infer that minimum-wage policy makes no difference. A more likely interpretation is that the equation excludes important variables.” In short, Card and Kruger mistook an absence of evidence of a minimum-wage effect for evidence of the absence of a minimum-wage effect.
When rational and sound time proven principles are shredded by political self serving ‘studies’, one should seriously question the studies. Unfortunately the media rarely questions such tripe from over credentialed blowhards and end up looking like fools.