Outtakes from my Nobel Article
The editor at the Wall Street Journal cut more meat than usual from my op/ed on the Nobel Prize winners. This isn’t a criticism. The Journal has its constraints and the editor told me that the piece needed to be shortened to fit on the page. I would rather have a short article than no article.
Still, I think many readers might find what was cut interesting. So here, I’ll post the relevant paragraphs. Then I’ll post a criticism of the Card/Krueger study on the minimum wage that was made at the time but that I forgot. (An economist reminded me of it on Facebook.) Finally, I’ll quote from an informative comment made by the reader of the Journal on the Journal‘s page.
On how politicians use the Card/Krueger minimum wage study:
Unfortunately, many politicians use the Card/Krueger findings about a 20-percent increase in New Jersey’s minimum wage to argue for a 107-percent increase in the federal minimum wage (from the current $7.25 an hour to $15.) In a 2015 New York Times op/ed, though, Krueger wrote that “a $15-an-hour national minimum wage would put us in uncharted waters, and risk undesirable and unintended consequences.”
On David Card’s Mariel Boatlift study:
Another natural experiment in labor markets was the Mariel Boatlift in 1980, which quickly expanded the Miami labor force by 7 percent. Card found no effect on wage rates or unemployment of unskilled non-Cuban workers in the Miami market, a finding that bolsters the case for immigration.
On Italy’s natural experiment with unemployment insurance:
Finally, the Nobel committee’s report cites economist Rafael Lalive’s 2008 study of an Austrian government extension of unemployment insurance benefits from 7 months to 4 years. The benefit went only to workers above age 50. By comparing those just below age 50 with those just above, Lalive concluded that the massive increase had caused people to be unemployed for an extra 15 weeks.
The criticism I left out:
Isn’t the biggest knock on Card and Krueger that they asked about the effects of minimum wage increases on total employment rather than on hours of labor supplied and demanded, along with changes in non-wage employee compensation?
In citing Neumark/Wascher, I implicitly cited that criticism, but should have ideally mentioned it explicitly.
Finally, on the WSJ site, commenter Richard Kelly stated:
New Jersey fast food restaurants had two years to prepare for the minimum wage increase. They did not have to fire people because those two years allowed them to let natural attrition do the job for them. The increase had a most definite negative impact on employment.
I don’t have data on this, but this is quite plausible. If you know a major change is coming and you have 2 years to prepare for it, you won’t typically wait 2 years to act.