After President Obama tapped Princeton University professor Alan Krueger to chair the Council of Economic Advisors, Washington Post blogger Ezra Klein wrote that Krueger “is arguably the leading labor economist in the country” and “known for bringing a near-superhuman rigor” to the subject.
One wonders how any economist would earn a “near-superhuman” superlative for their research. One can particularly wonder in the case of Professor Krueger, who is known for his 1990s academic research that attempted to prove that employee wages were not subject to the laws of supply and demand.
In 1993, Krueger and David Card published a study that examined employment statistics of fast-food restaurants in New Jersey and Pennsylvania following the Garden State’s minimum wage hike. The authors reported that employment at fast-food chains in New Jersey increased by 13 percent compared to restaurants across the Delaware River in Pennsylvania. Clinton administration Labor secretary Robert Reich, Senator Kerry, Senator Kennedy, and other luminaries of the Left pointed to the study’s findings to call for raising the minimum wage.
But analysis by independent researchers revealed the Krueger-Card report, which was based on a phone survey in which fast food restaurant managers and assistant managers were asked about their staff size, to be deeply flawed. The Employment Policy Institute analyzed the phone survey results against actual payroll data from the restaurants and concluded that “the data set used in the New Jersey study bears no relation to numbers drawn from payroll records of the restaurants the New Jersey study claims to cover.”
According to the Krueger-Card data set, a Burger King in New Jersey went from zero to 29 full-time workers after the minimum wage hike between February and November of 1992, while a Wendy’s in Pennsylvania reduced its workforce from 30 to zero full-time workers during the same nine-month period. Truly radical — indeed, implausible — shifts in a business’s employment strategy. When compared to actual employment records, the EPI analysis found that in one third of the restaurants surveyed, Krueger-Card even got the direction of employment change (whether staff was cut of added) wrong.
A subsequent analysis published by the National Bureau of Economic Research based on payroll records of fast-food restaurants during the same period revealed that Garden State workers experienced a 4.6 percent decrease in employment after the minimum wage hike compared to the Pennsylvania control group. In other words, they confirmed the commonsense economic principle that when something costs more, people can afford less of it. Or in the case of a minimum-wage hike, when workers cost more to employ, businesses can afford to hire fewer workers.
If we weren’t suffering 9 percent unemployment, it would be easy to enjoy the irony of the leader of the “party of science” choosing a man to lead the White House’s “pivot” to jobs who, based on this faulty study, could be called a “supply and demand” denier.
To expand a little further.
The authors of the study called a handfull of fast food establishments shortly before the new minimum wage went into affect and shortly after.
The asked whoever answered a simple question. How many people worked there.
They didn't specify what they meant by worked. Was it how many people were working right now? Was it how many people in total were on the payroll. Was it just full time employees, part time, full time equivalents? Whatever the person answered, was put down.
Even worse, when they called back, there was no attempt to get the same person they talked to the first time. So a brand new person got to guess as to what kind of information the questioners wanted.
There were so many ways that this "survey" violated the standards of science, that it would take a book to list them all.
It is hard not to conclude that they authors knew that a rigorous study would not provide the numbers they were looking for, so they invented a way that might. Kind of like Michael Mann inventing an entirely new statistical method in order to prove that the Mideval warm spell and little ice age did not exist.
Reply to this commentLinkReport AbuseDudes and Dudettes, the purpose of the minimum wage (or raising it) is specifically to discourage the creation or retention of jobs that pay beneath that wage. That was its original purpose, and like it or not, it still is.
It is not for the purpose of making employees richer. Maybe that's what politicians tell them. Maybe they even believe it.
The only question is whether there is a general public interest in reducing the number of jobs that would exist at lower wages, if there were no minimum wage. I claim that such general public interest exists, and that the minimum wage serves the purpose; you may disagree based on theory or facts, but I'm not attempting to argue the case here.
Thus, if a study show that raising the minimum wage kills jobs, or reduces the number of hours worked by minimum wage workers (so that net pay is the same), I say that's no surprise, because it is the intent. How could it be otherwise?
When someone says, "Policy X kills jobs," I say, "Perhaps that kind of job need not be done?"
It doesn't have to be minimum wage at issue. The local county-wide public bus system re-negotiated its union contract a few years ago, shortly before the recession. Drivers demanded and got more. Then when the recession hit, there were slightly fewer passengers (fewer going to work) and there was slightly less tax revenue. Fares were locked in to a set price, for some reason. The net result was route cutbacks to avoid bleeding money. That didn't reduce the fare box take super-much, since the less-popular routes were cut. But it did reduce the number of hours worked by drivers considerably. The net result was that the drivers got more per hour, but drove less: No net gain for the drivers. It would have been much the same result had it been a privatized bus system.
Reply to this commentLinkReport AbuseWhen someone says, "Policy X kills jobs," I say, "Perhaps that kind of job need not be done?"
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Why is it that you believe that you have a right to tell other people what jobs may or may not be done?
Reply to this commentLinkReport AbuseYour comment is totally bizarre. You make a testable assertion: Where is your data that anyone advocating increasing the minimum wage is trying to eliminate jobs as opposed to increasing the pay of low paid employees? You are arguing that the effect is the cause. As I said bizarre.
Reply to this commentLinkReport Abuse'When someone says, "Policy X kills jobs," I say, "Perhaps that kind of job need not be done?"'
So your position is we're better off forcing consumers to pay more for goods and services in order that people who don't make a lot of money should have no job at all?
Reply to this commentLinkReport AbuseThis choice of Krueger is nothing but a continuation of Obama's practice of surrounding himself with sycophants who will tell him what he wants to hear, not what he should hear to get this country back on track. Any person expecting to see something different in Obama's "new jobs plan" next week is nuts. It will contain more "investment in infrastructure", a continuation of unemployment benefits, a continuation on the "payroll tax holiday" and more "stimulus". All of which will be funded by the government's money printing press!
Reply to this commentLinkReport AbuseKrueger? Wasn't he George Costanza's goofy boss on "Seinfeld"? ;)
Reply to this commentLinkReport AbuseYeah... and a fast food restaurant operating with zero employees sounds like Kramer's pizzeria where you make your own pie... but Poppy says, no cucumbers!
Reply to this commentLinkReport AbuseAmazing. How on earth could such a study be replicated in any meaningful way? What is even stranger is that ADP, which is based in New Jersey, could have provided Kreuger with reams and reams of data that could have been sliced and diced numerous ways. Methinks that confirmation bias was heavily at work.
Reply to this commentLinkReport AbuseGlad to see someone bringing up the Card/Krueger minimum wage "study".
The OP only scratched the top of the iceberg though.
The phone survey underlying the Card-Krueger data set convincingly and thoroughly discredited, despite all efforts by Card-Krueger to have their work scrutinized by academic researchers.
Card & Krueger, with the help of the then editor of the American Economic Review, did everything they could to frustrate and subvert subjecting their work to real peer review. They refused to turn over their data, they refused to turn over the surveys, to academics who were seeking to replicate the work.
This is pretty basic folks -- by publishing in a major academic journal, you agree to make your data available for scrutiny and replication. There is no academic integrity otherwise.
And Card & Krueger did all they could to exert political power (political in the sense that they were in the "in group" at the journal and in academia at large) to keep their shoddy, flawed, work from being scrutinized.
It got even worse.
Card and Krueger notoriously engaged in vicious political attacks against the academics who had the gall to scrutinize their work. They destroyed careers -- excellent researchers found themselves denied tenure because they questioned Card and Krueger.
Go ask David Neumark how it felt to take on Card and Krueger.
It's deeply disappointing that Obama would appoint someone to head CEA who made it to the big time on a flawed, sloppy, fudged paper and who has demonstrated a frightening unacademic spirit of exerting raw political power to destroy those who'd put his shoddy work to academic scrutiny.
Disappointing, but not at all surprising.
After all, the way Card and Krueger behaved toward people like Neumark is no different than the way Obama behaves towards who disagree with him: vilify them and destroy them.
Reply to this commentLinkReport AbuseFaulty by design.
There were better ways of getting the necessary data, but Krueger decided against it. That would have to be because Krueger was either:
A) Incompetent
or
B) Looking to get data he could massage to his liking.
Knowing how brilliant Obama is, and by virtue of being picked by Obama, how brilliant Krueger must be, it eliminates option A and leaves option B as the only explanation.
Another thing: Isn't it strange how liberals always want to increase the price of cigarettes to cut down on smoking and increase the price of gas to cut down on driving but still argue that increasing the price of labor will not cut down on employment.
Reply to this commentLinkReport AbuseThe only reasonably possible reason for doing research that cannot be duplicated, checked, or verified because the source data is subjective is to arrive at a result you want, not the one real research would discover. This isn't an accident--this is intent.
In fact, I'll take it one step further: The only reason to do this is because you suspect that the actual, verifiable, replicable results would be OPPOSITE to what you desire. I think that's a very important point--that the fix was in because they KNEW or BELIEVED the results would not match their prejudices.
At the very least, this is one more example of academia just "knowing" that they "know best"--climate change anyone?--not to mention contempt for even basic scientific standards let alone the general population which will be expected to swallow these flawed studies as gospel.
There's been a lot of talk lately about Rick Perry and other Conservatives being anti-science. I think it is probably fairer and more sensible to say that with science like this study, Americans of all political persuasions should be anti....scienTISTS who try to pass this kind of nonsense off as science.
Funny how those are the only kind Obama likes, appoints to important and powerful positions, and continues to endorse along with their utterly non-productive ideas.
Or maybe not so funny.
Reply to this commentLinkReport AbuseIf minimum wage kept pace with inflation, it would be $2/hr less than it is today compared to when I was a kid. I can't believe I have to pay almost $8/hr for teenagers. It's absurd. It's no wonder teen unemployment is so incredibly high.
Reply to this commentLinkReport AbuseMath lesson: $7.25/hr is not almost $8/hr. It's almost $7/hr.
Reply to this commentLinkReport AbuseHe said "have to pay almost $8.00 for teenagers". He pays more than the salary for their labor. Don't forget the Social Sec and Medicare percentages he pays on the employee's behalf.
Ignoring payroll processing costs, that brings the total to a fraction over $7.80 as what he pays FOR teenagers.
Reply to this commentLinkReport AbuseCivics lesson: Some states have higher minimum wages than the federal minimum wage.
Reply to this commentLinkReport AbuseCivics lesson: current federal minimum wage is $7.25/hr.
Are you asserting that his omission of the preposterously obvious fact that state minimum wage rates may be higher than the federal minimum wage invalidates the points he's made?
Namely, that if minimum wage had simply kept pace with inflation he would be able to hire (read: employ; read: reduce unemployment by) an additional worker for each two of the workers he currently employs?
Political lesson: Trogs will bitterly cling to anything so long as it helps prevent them looking at the dystopian reality of of their machinations.
Reply to this commentLinkReport Abuse@JohnEm:
Business Lesson: what the other posters replied (my state has a higher min wage then the Federal one) PLUS business losses due to unreliable teenagers increase costs as well PLUS business losses due to mandatory insurance like Worker's Comp. The real wage is much higher than "minimum wage".
But in terms of apples to apples, and just to reiterate my original point, the math formula for calculating adjusted wages is (1+r)^t Assuming an average inflation rate of 2.5% over 20 years, minimum wage should be $5.50/hr compared to the $3.35/hr I was paid as a high school kid and the $7.25 the Feds currently mandate.
I could hire one more "kid" for every 2 I currently employ if "minimum wage" were adjusted for inflation. (not that I think the government should be in the business of mandating pay for private-sector employment contracts)
Reply to this commentLinkReport AbuseMath Lesson #2: Don't pick an arbitrary price point to make a non-argument.
Reply to this commentLinkReport AbuseHave you ever noticed that the people who claim to "believe in science" only believe in the kind of science that has to be believed in.
When it comes to the actual scientific method, not so much.
Reply to this commentLinkReport Abuse