The study of one of the 2021 Nobel Prize winners in economics that went against the theory of the negative effects of the increase in the minimum wage on employment – La Tercera

In 1992 the alarms were raised in New Jersey by an increase in the minimum wage from US $ 4.25 to US $ 5.05 an hour, because it was presumed that the measure would reduce the labor supply. However, this theory did not convince the recent Nobel Prize winner in economics and academic from the University of California Berkeley, David Card, and its co-author, the late former Bill Clinton and Barack Obama adviser Alan Krueger.

Thus, they decided to challenge them, in a field study, taking advantage of the contrast provided by neighboring Pennsylvania, which kept the minimum wage intact and which, according to the pair, had “seasonal employment patterns (which) are similar”, so would serve as a control group.

The result of his study, presented in 1994 in the paper “Minimum Wages and Employment: A Case Study of the Fast Food Industry in New Jersey and Pennsylvania”, managed to challenge with empirical evidence the most orthodox view that the economy had brought since the 70s in this regard and 27 years later it is one of the reasons why Card was left with the Swedish medal.

On each side of the Delawer River, the researchers considered a total of 410 points of fast food chain stores, such as McDonard’s, Burger King and KFC, which were the most employed with minimum wage at that time and area. The first interviews were conducted in January and February 1992, while the second round took place in November and December of the same year.

The changes were evident and, surprisingly, with better results for the State that had decided to raise the minimum wage. “Contrary to the central predictions of a minimum wage model text, but consistent with recent studies based on comparative series of panel groups at different time points of affected and unaffected markets or employees, We found that there is no evidence that the increase in the minimum wage in New Jersey reduced employment in fast food restaurants in the State ”, it reads on the paper.

In effect, in the restaurants that were the object of the study in New Jersey that applied the increase in salaries, not only were jobs not destroyed, but – unlike what happened in Pennsylvania – they achieved an increase of 13% in that period. Job positions.

Alan Krueger, was president of the Council of Economic Advisers of the White House under the administrations of Bill Clinton and Barack Obama. He passed away in 2019.

In this framework, they are specific regarding the fact that “the rise in wages created employment.” As detailed, presented “a wide variety of alternatives with specifications to test the robustness of our conclusion. None of the alternatives showed a negative effect on employment ”.

For example, a year after the rise in the minimum wage, they checked their findings for the case of adolescent employment, comparing New Jersey not only with Pennsylvania, but also with New York. “Again the results pointed to a relative increase in employment for low-income workers in New Jersey,” they say.

Additionally, the study maintains that “no evidence was found that the increase in the minimum wage reduced the number of McDonald’s stores open in the State.” They do detail that they found that “prices of fast food menus had a relative increase in New Jersey, relative to Pennsylvania, suggesting that much of the burden of raising the minimum wage was shifted to consumers. However, in the interior of New Jersey we found no evidence that prices will increase more in the places that were most affected by the minimum wage ”.

The influence of this work was reflected in surveys directed at members of the American Association of Economists. In 1978, 90% of them agreed that raising the minimum wage substantially reduced employment among low-income workers, which fell to 46% in 2000.

Later, The Initiative of Global Markets at the University of Chicago conducted surveys of economists with the same query and the percentages continued to fall. On an increase in the minimum wage to US $ 9 an hour in 2013, 34% believed that there would be a decrease in employment; while at US $ 15 in 2015, it was 26%.

In the United Kingdom it also had an impact. According to the Guardian, in 1999 former Prime Minister Gordon Brown and his Labor Party economic adviser, Ed Balls, used the investigation to justify their plan for a national minimum wage that was introduced in 1999. Although initially the Party Conservative opposed, today there is a broad consensus on the benefits of such a policy.

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The study of one of the 2021 Nobel Prize winners in economics that went against the theory of the negative effects of the increase in the minimum wage on employment – La Tercera