By Bryan Caplan
$15 minimum wages methodologically excite Noah Smith:
Sometimes people ask me where I stand on economic policy. Am I a
free-marketer or an interventionist? I tell them that I’m an
In statistics, “identification” just means separating two groups in
order to tell if a treatment works. You give Group A the pill and you
give Group B a placebo, and you see if Group A does better than Group B.
In laboratory experiments this is usually possible to do. In the real
world, it’s a lot harder — you have to wait for a policy to bring about
a difference between two areas that are roughly comparable.
This is why I’m so happy about the $15 minimum wage that is being phased in in cities such as Los Angeles, Seattle, and San Francisco. We’re about to find out if minimum wage laws really have big negative effects on the economy.
But how convincing will these experiments really be? If I were sympathetic to the minimum wage, I would say, “The worst the experiments will show is that high minimum wages hurt employment in individual cities. That wouldn’t be too surprising, because it’s easy for firms and workers to move in and out of cities. The experiments will shed little light on state-level minimum wages, and essentially no light on federal minimum wages. Identificationists like Noah are looking for their keys under the streetlight because it’s brighter there.”
Are these bad arguments? They are if you only embrace them after you incorrectly predict no change in employment. But minimum wage supporters can and should precommit to them today. Contrary to Noah, these city-level experiments barely speak to the debate that’s raged in economics for decades.
The good news, though, is that there’s a lot more relevant evidence on the disemployment effects of the minimum wage than Noah admits. It just hasn’t been suitable framed.