Minimum Wage

The Card-Kreuger Study

• Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania," David Card &Alan B. Krueger, The American Economic Review, Vol. 84, No. 4. (Sep., 1994), pp. 772-793.

• "The Effect of New Jersey's Minimum Wage Increase on Fast-Food Employment: A Re-Evaluation Using Payroll Records," David Neumark & William Wascher. Card and Kreuger's employment data was bad. They got it by phoning up restaurants---or having research assistants do it. N-W got administrative payroll data from the restaurants. This took 5 years to appear in print, as: Neumark, David, and William Wascher. 2000. “Minimum Wages and Employment: A. Case Study of the Fast-Food Industry in New Jersey and Pennsylvania: Comment.” Amer­ican Economic Review 90, no. 5 (December): 1362-1396.

David Card & Alan B. Krueger, "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania: Reply." American Economic Review, December 2000, 90(5), pp. 1397-420.

• citing the N-W book, p.71 , "3.4.5 Reactions to the State Case Studies":

The Card-Krueger data were elicited from a survey that asked managers or assistant managers “How many full-time and part-time workers are employed in your res­taurant, excluding managers and assistant managers?” This question is highly ambiguous, as it could refer to the current shift, the day, or per­haps the payroll period, and the respondents’ interpretation of it could differ in the observations covering the periods before and after the minimum wage increase. In contrast, the payroll data referred unam­biguously to the payroll period used by the restaurant. Reflecting this difference, the data collected by Card and Krueger had much greater variability across the two observations than did the payroll data, with changes that were sometimes implausible...

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In contrast both to their original study and to our replication, their reanalysis generally finds small and statistically insignificant effects of the increase in New Jersey’s mini­mum wage on employment, and they conclude that “the increase in New Jersey’s minimum wage probably had no effect on total employ­ment in New Jersey’s fast-food industry, and possibly had a small pos­itive effect”.

• [https://www.economics.uci.edu/files/docs/workingpapers/2006-07/Neumark-08.pdf "MINIMUM WAGES AND EMPLOYMENT:

A REVIEW OF EVIDENCE FROM THE NEW MINIMUM WAGE RESEARCH,"] David Neumark and William Wascher October 2006:

In a review piece on Card and Krueger’s book Myth and Measurement, Richard Freeman (1995) wrote that “their analysis is a model of how to do empirical economics” (p. 831). Similarly, Paul Osterman (1995) asserted that Card and Krueger “make a powerful case that what they term ‘natural experiments’ are a more appropriate way to conduct policy analysis than cruder research based on time-series or broad cross-sections” (p. 839).

However, other labor economists were more critical of these studies. In particular, Finis Welch (1995)—again referring to Myth and Measurement—states that: “I am convinced that the book’s long-run impact will instead be to spur, by negative example, a much-needed consideration of standards we should institute for the collection, analysis, and release of primary data” (p. 842). Likewise, Hamermesh (1995) concludes that “even on its own grounds, CK’s strongest evidence is fatally flawed” (p. 838).

In general, the criticisms of the case study approach focused on four issues. The first is the question of adequacy of the control groups used in the studies, a concern emphasized by both Hamermesh and Welch. On its face, for example, it seems reasonable to question the use of Georgia, Florida, and Dallas/Ft. Worth as adequate control groups in Card’s study of the California minimum wage increase, given that these places are far from California and likely influenced by very different demand conditions. But even for states with geographic proximity, using one state as a control may be problematic. For example, Deere et al. (1995) pointed out that teenage employment rates (as measured by the CPS) in New Jersey diverged significantly from those in Pennsylvania beginning in 1988, casting doubt on Card and Krueger’s claim that Pennsylvania represents a sensible control group with which to compare New Jersey.

More broadly, Hamermesh questioned the practicality of this entire approach for studying the effects of minimum wages, noting that the variance in employment seems to be dominated by demand shocks, which suggests that “any changes in the relative demand shocks” affecting two geographic areas will easily “swamp the effect of a higher minimum wage” (p. 837).

Other Stuff

• "Reconciling the evidence of Card and Krueger (1994) and Neumark and Wascher (2000)," Olli Ropponen, J. Applied Econometrics, 2011. I don't know if this is any good.

• "Replicating Card and Krueger’s Minimum Wage Study in R,"

Aaron Mamula, 6/17/2021. A nice replication with links to the original data. No surprises.

Brown, Charles. 1995. “Myth and Measurement: The New Economics of the Minimum Wage: Comment.” Industrial and Labor Relations Review 48, no. 4 (July): 828-830.

Deere, Donald, Kevin M. Murphy, and Finis Welch. 1995. “Employment and the 1990­1991 Minimum-Wage Hike.” American Economic Review Papers and Proceedings 85, no. 2 (May): 232-237.

Freeman, Richard B. 1995. “Myth and Measurement: The New Economics of the Mini­mum Wage: Comment.” Industrial and Labor Relations Review 48, no. 4 (July): 830-834.

Hamermesh, Daniel S. 1995. “Myth and Measurement: The New Economics of the Mini­mum Wage: Comment.” Industrial and Labor Relations Review 48, no. 4 (July): 835-838.

Kim, Taeil, and Lowell J. Taylor. 1995. “The Employment Effect in Retail Trade of Califor­nia’s 1988 Minimum Wage Increase.” Journal of Business and Economic Statistics 13, no. 2 (April): 175-182.

Welch, Finis. "Myth and Measurement: The New Economics of the Minimum Wage: Review Symposium: Comment." Industrial and Labor Relations Review, July 1995, 48(4), pp. 842-49.

dels and how they do empirical research. Although the notori- ety surrounding Myth suggests important conclusions that challenge economists' fun- damental assumptions, I am convinced that the book's long-run impact will instead be to spur, by negative example, a much- needed consideration of standards we should institute for the collection, analysis, and release of primary data