It is not true that, before David Card and Alan Krueger published their famous research in 1994, economists will ignore that the increases in the minimum wage they didn’t have to destroy job. Both Friedman and Buchanan or Hirshleifer They recognized between the 50s and 80s that, in the presence of a labor monopsony, an increase in the minimum wage could increase the level of total employment (instead of reducing it). However, all of them considered that a labor monopsony was hardly plausible, so that the theoretical possibility that the SMI contributed to creating employment was just that: a theoretical curiosity.
Card and Krueger’s seminal 1994 article, analyzing the effect of a rise in the SMI in New Jersey in 1992, he was innovative in a double sense. On the one hand, because it used the difference-in-differences method to isolate the marginal effect of the increase in the SMIIf, throughout 1992, New Jersey had increased the SMI and Pennsylvania (the adjacent state) had not, then, by comparing the evolution of employment in New Jersey and in Pennsylvania, we could isolate the specific effect of the SMI in New Jersey . On the other, because it produced an atypical result up to that point: no adverse results were seen on employment by raising the SMI. Was the unlikely work monopsony more credible than was assumed?
Certainly, the results of the ‘paper’ are still debated today: the effects on employment were only measured among the staff of fast food restaurants in the contiguous counties between the two states, which could contaminate the end result by many different biases. For example, organizational changes to adapt to the new salary scale could take more than a year and not enter the measurement; or maybe big companies like McDonald’s They did have the ability to adapt to the rise in the SMI by raising the prices of their products, but other small companies in the area – which were also affected by the SMI – could not do so and perhaps had to resort to layoffs that were not measured in the ‘paper’; or it may even be that the selection of the control group was not the most appropriate if, for example, some workers in the Fast-food restaurants from Pennsylvania moved to seek employment in New Jersey attracted by the higher wages.
Be that as it may, the important thing about the ‘paper’ was not so much that the result was definitely that as, on the one hand, the methodology used and, on the other hand, that with this methodology it would have been possible to find SMI effects that until then were considered atypical. It was then that a whole line of research currently known as ‘New Minimum Wage Research ‘whose results yield conclusions much less critical (or even favorable) towards the SMI rise. Now, let’s not think that the ‘New Minimum Wage Research’ constitutes something like the definitive consensus within the academy: many other economists are skeptical and the debate is far from being settled.
Juan Ramon Rallo
Hence it is so deplorable that our left country has taken advantage of the Nobel Prize to David Card, not to recall how far our understanding of the effects of minimum wages has advanced since 1994, but to present Card as the person who definitely demonstrated that raising the minimum wage does not generate negative effects on employment.
It should be clear that Card could never prove such a thing, since his study is limited to analyzing what happened to the rise in the SMI in New Jersey fast food restaurants during 1992. What is the point of pretending make those results universal and timeless? No minimally serious economist could claim that no rise in the SMI, anywhere in the world and at any time in history, could lead to job destruction. But that nonsense is what some of the media have wanted to sell us: that it had already been shown that raising the minimum wage does not destroy jobs and that is why they have given him the Nobel.
Juan Ramon Rallo
Without going too far, we have a clear and recent domestic example of the opposite: the Bank of Spain, using a methodology similar to that of Card and Krueger, estimated that our country had been left with up to 170,000 fewer jobs as a result of the rise of the SMI in 2019. Will the same people who applaud the results of the Nobel Card for its innovative methodology, will they also applaud the recent study by the Bank of Spain? In many cases, I have no doubt that this will be the case, but I also have no doubt that in many others it will not be the case: what some are looking for is that headline that allows them to advance their ideological agenda. That is why they have launched themselves enthusiastically to manipulate what David Card said and did not say.
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What the Nobel did not say