Faith and economics at the Star Tribune

The Minneapolis Star Tribune editorial on the proposal to raise the minimum wage from $5.15 to $7.00 is, as might be expected, pitiful: “Minimum wage/Time for an increase.” It is also, however, a perfect example of what passes for argument and analysis among the Star Tribune’s lefties-only editorial board.
The proposal emanates from the Democrat-controlled Minnesota Senate. The source of the proposal is a kind of warrant of its good faith in the eyes of the Star Tribune. More importantly, however, the proposal reflects “an article of faith.” The relevant article of faith here is one found in the High Church of Liberalism: “that someone who works full time should achieve a certain degree of economic dignity.”
On the one hand, this is a frustratingly vague article of faith: What the heck is economic dignity? What degree of economic dignity should someone who works full time have? On the other hand, we may infer that it is an article of faith with an amazingly high degree of precision: “I believe in jobs that pay $5.15 an hour in 1997 dollars, or $7.00 an hour in 2006 dollars.” Is there anyone out there in Strib land who wonders whether $7.00 an hour doesn’t buy enough economic dignity to warrant credal status? Why so cheap an article of faith? Why not $14.00 an hour? Or $140.00 an hour? Perhaps this is where that “article of faith” point comes in handy. Credo quia absurdum.
But this is the kind of article of faith that has evidence to support it! Raising the minimum wage by law has no adverse economic consequences. Economists, who might be thought to know something about the subject, thought so once upon a time. (Actually, they still do.) Now, however, it is only fuddy-duddy “business lobbyists” who hold such troglodytic views:

There are principled arguments against a higher minimum wage, but they no longer hold up under scrutiny. Business lobbyists say that a higher wage will stifle job creation. The idea is plausible in principle, but a landmark study by Princeton economists David Card and Alan Krueger found the effects to be negligible in practice. In fact, of the 13 states that exceeded the federal minimum wage in 2003, seven outperformed the rest of the country in job creation.

What was that Card/Krueger study? Why bother with details when you’re dealing with an article of faith, and of course the Star Tribune doesn’t bother. The famous Card/Krueger study involved calling fast food outlets in New Jersey after New Jersey raised its minimum wage in 1992. The study found that raising the minimum wage had no impact on jobs at the fast food outlets.
Here is a good summary of the Card/Krueger study and its flaws by Benjamin Zycher:

The most frequently cited, and seemingly most convincing, new study takes advantage of a “natural experiment” created when New Jersey raised its minimum wage from $4.25 an hour to $5.05 in April 1992. David Card and Alan Krueger of Princeton reasoned that since economic conditions ought not vary greatly between southern New Jersey and eastern Pennsylvania, which are essentially a single economy, looking at employment trends in the two states ought to reveal the effects of the minimum wage.
Card and Krueger conducted telephone surveys of about 400 fast-food restaurants in February-March 1992, and then again in November-December 1992. They asked questions about full- and part-time workers, wages, benefits, and prices. From their statistical analysis of those survey data, Card and Krueger not only “find no evidence that the rise in New Jersey’s minimum wage reduced employment at fast-food restaurants in the state,” but “find that the increase in the minimum wage increased employment.” Indeed, the Card/Krueger statistical analysis suggests that the 18.8-percent increase in the New Jersey minimum wage yielded a 20.8-percent increase in employment relative to the Pennsylvania sample.
One immediate problem is that the authors looked only at major fast-food chains: Elementary economic analysis does not say that if you increase the minimum wage, employment will go down in every business–or in any particular business. The higher minimum wage might have differing impacts across firms. Indeed, it is possible that the major fast-food chains might emerge better off if the increased minimum wage raises costs at such smaller competitors as mom-and-pop fast-food stands.
Moreover, the Card/Krueger study turns out to have a major flaw: The survey data upon which it depends are lousy.
Suspicious of the Card/Krueger data and findings, the Employment Policies Institute gathered the actual payroll records from the Burger King franchises in the Card/Krueger zip codes and compared them to franchises surveyed in those zip codes. The survey data were wildly inconsistent with the payroll records. (The payroll sample also includes some restaurants that Card and Krueger missed.)
Independently, David Neumark of Michigan State and William Wascher of the Federal Reserve noticed that the variation in employment changes across the surveyed restaurants in the Card/Krueger sample seemed implausibly large–some restaurants had supposedly added huge numbers of employees while others had supposedly cut large numbers. In relatively small businesses, this sort of fluctuation seemed odd.
So Neumark and Wascher reviewed the payroll employment data gathered by EPI. When they applied the payroll data to the same econometric model used by Card and Krueger, they got completely different results. The variation in employment changes declined markedly, and analysis of the new data yields an estimated 4.8-percent decline in New Jersey employment relative to the Pennsylvania sample as a result of the higher minimum wage. Where payroll data could be compared with survey data for specific restaurants, Neumark and Wascher also found numerous errors in the Card/ Krueger data.
Looking just at Burger King restaurants, for instance, the Card/Krueger survey data show employment declines in two of three Pennsylvania zip codes, while the payroll data show employment increases in all three zip codes. Neumark and Wascher conclude that the questions used by Card and Krueger were too vague to generate precise information. For example, the survey asked how many “full-time” and “part-time” employees a restaurant had. But it didn’t define either those terms (40 hours a week? 30?) or the relevant time period (within the last week? month? year?), leaving different restaurant managers to define the question differently. In short, using the actual payroll data instead of the survey “guesstimates” effectively refutes the Card/Krueger findings yielded by the New Jersey/Pennsylvania “natural experiment.”

Or perhaps the Star Tribune is referring to other Card/Krueger studies, or to the book that Card and Krueger subsequently published on the subject, Myth and Measurement: The New Economics of the Minimum Wage. The Star Tribune’s reference to “a landmark study” makes it difficult to determine what is being cited. In any event, see Deer, Murphy and Welch, “Sense and Nonsense on the Minimum Wage.” The Star Tribune editorial today falls into the category of “nonsense on the minimum wage.”


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