Card and Krueger on minimum wage

20 March, 2016 at 22:23 | Posted in Economics | 2 Comments

“Myth and Measurement” was recently re-released as a 20th anniversary edition. While it’s common now to hear that raising the minimum wage won’t increase unemployment, the initial empirical work by Card and Krueger wasn’t immediately embraced by other economists …

minimum-wage-profitsAnd it makes sense why some economists would find Card and Krueger’s results so shocking and at times literally unbelievable. Simple supply and demand tells us that if a higher minimum wage pushes a wage rate above its equilibrium level, then the amount of labor demanded by firms will decline and the number of jobs will drop as a result. But that’s the simple theory of supply and demand in a perfectly competitive labor market. Card and Krueger’s analysis—along with further work by other economists—shows that the predictions of the perfectly competitive market don’t come true.

Of course, not everyone in the economics profession hasn’t come to the same conclusion as Card and Krueger …

Nick Bunker/Equitablog

No, indeed, not everyone came to the same conclusion …

buchC6The inverse relationship between quantity demanded and price is the core proposition in economic science, which embodies the pre-supposition that human choice behavior is sufficiently rational to allow predictions to be made. Just as no physicist would claim that “water runs uphill,” no self-respecting economist would claim that increases in the minimum wage increase employment. Such a claim, if seriously advanced, becomes equivalent to a denial that there is even minimal scientific content in economics, and that, in consequence, economists can do nothing but write as advocates for ideological interests. Fortunately, only a handful of economists are willing to throw over the teaching of two centuries; we have not yet become a bevy of camp-following whores.

James M. Buchanan in Wall Street Journal (April 25, 1996)

2 Comments »

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  1. What’s interesting is that increases in the minimum wage actually could result in increases in employment, because people would be making more money and could purchase more, and by purchasing more goods, companies would have to hire more employees, and so on.

  2. That was then; this is now. Physicists have known how to make water run uphill for 10 years now, see http://news.bbc.co.uk/2/hi/science/nature/4955398.stm. Egyptian engineers have used siphons to make water run uphill for 3500 years, Archimedes invented a pump nearly as long ago. Buchanan’s economics appears to be one of the few “sciences” where denial of reality is still an effective argumentative technique.


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