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Go Home Alan Krueger's Key Insight

JONATHAN CHAIT AUGUST 29, 2011

Alan Krueger's Key Insight

BY JONATHAN CHAIT

President Obama has nominated Alan Krueger as head of the Council of Economic Edvisors. Krueger gained fame in 1992 for a study showing that raising the minimum wage did not necessarily cost jobs. Economic models suggest that a minimum wage hike raises the cost of labor for businesses and, necessarily, decreases demand as a result. Krueger, along with Alan Card, studied fast food restaurants in New Jersey (which raised its minimum wage from $4.25 to $5.05) and eastern Pennsylvania (which did not change its minimum wage.) They found that New Jersey did not suffer higher unemployment among minimum wage workers.

Obviously, the study did not prove, nor did the authors claim, that the minimum wage could be raised infinitely with no cost to employment. Rather, it merely showed that the frictionless supply and demand curves in textbooks do not perfectly translate to the real world, and that, especially at lower levels of impact, the predicted effects often do not materialize at all. This is, in fact, one of the key insights of applied economics and an important division between liberal economists and conservative ones.

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13 comments

Que? I think you're stating the results backward - if NJ had showed higher unemployment, it would confirm the standard model of minimum wage effects.

- bmoodie

August 29, 2011 at 9:25am

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"They found that New Jersey suffered higher unemployment among minimum wage workers." You mean, they found that New Jersey experienced no higher unemployment even with the minimum wage hike. They specifically find that increasing the minimum wage increased employment. You can't make a mistake like this, since we can't be expected to skim the paper to find that out.

- chaitless

August 29, 2011 at 9:27am

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You need to fix this. You stated the exact opposite conclusion.

- jbeizer

August 29, 2011 at 10:54am

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They found that New Jersey suffered higher unemployment among minimum wage workers. The abstract states: "We find no indication that the rise in the minimum wage reduced employment."

- sighthnd

August 29, 2011 at 10:59am

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appears the error has been corrected. Alan Krueger is a fine choice. Give him a medal for putting country first because I was wondering if Obama could get anyone to flesh out his decimated economic advisory team for the next 15 months. Too bad Obama has lost Sheila Bair, and can not get Robert Kuttner on-team.

- K2K

August 29, 2011 at 11:33am

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So Krueger is another liberal who doesn't understand the difference between an inductive and deductive argument. I have found a case of a 100 year old chain smoker who drank heavily. With Chait's illogic, we can now ignore the warning labels on cigs. Yes, let's design solutions and make policy based on rare exceptions. Moonbat morons.

- mr_rationale

August 29, 2011 at 11:35am

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I don't understand. There's no mention of Mr Krueger working for JP Morgan or Goldman or Citi. Why is O'bama picking him?

- IggyPop

August 29, 2011 at 11:37am

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I'll take a scientific study over conservation economic theology any day, mr_rationale.

- GSpinks

August 29, 2011 at 11:46am

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"Why is O'bama picking him?" Krueger was already confirmed by the Senate in 2009 for his stint at Geithner's Treasury, so one successful confirmation vote seems to now be Obama's #1 criteria for anyone requiring a Senate confirmation. The reason Jon Corzine (the Goldman Sachs slot) remains unemployed is he can not get a Senate confirmation, leaving Geithner hostage as SecTreas until after the 2012 election.

- K2K

August 29, 2011 at 1:23pm

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Heavy vocabulary for you, rat. Experiment is inherently inductive. The experiment did not confirm the result that neo-classical economists and those such as you even further right deduce from their theory. According to Bayes's Theorem, it is therefore evidence that the theory is not correct. Goodbye.

- roidubouloi

August 29, 2011 at 2:48pm

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Conservative economics are a bad joke. Corporate America is making all-time record profits, supposedly has $2.5 trillion in the bank, and has access to record-low interest rates. Where are the jobs? How long do we have to wait for the "job creators" to display enough guts to hire highly-productive Americans, instead of Third World children? 20 years? 50 years? 100 years? Capitalists used to have cajones. They have become cowering cowards. And they are the heroes of the conservatives.

- magboy47.

August 29, 2011 at 3:50pm

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Good post Jon - but the co-author on the study is David Card, not Alan Card.

- Jake0578

August 29, 2011 at 4:19pm

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Dear mr_rationale Do you represent a group? If not, I suggest the signature line of your comment should be in the singular. Also, by convention the period is not necessary, although you might start it with an em-dash.

- blairxy

August 29, 2011 at 6:55pm

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