Myth and Measurement: The New Economics of the Minimum Wage.

• Author: Neuberg, Leland G.

This book analyzes data to answer the question: what are the effects of a "modest" minimum wage increase? Contrary to the answer of the standard textbook model, the authors find that such an increase does not reduce employment of low wage workers. Nor does it much reduce profits of firms that employ such workers. Instead, consumers of products of firms that employ such workers experience price increases. Card and Krueger also find that wages of low wage workers increase with a "modest" minimum wage increase, and that such workers are disproportionately from households with low earnings. They conclude that the gap between the earnings of those in the lower and upper tails of the household earnings distribution lessens with a "modest" minimum wage increase. Finally, they explain their findings with a set of models that reject the notion that employers take wages and prices as given.

The book's new empirical evidence on the employment effects of a minimum wage hike is from seven "natural experiments." These find the proportional change in employment after and before a minimum wage hike for each unit of observation, (employer or state), and compare these changes for units with different "exposures" to the hike. They compare a group of low wage employers from a state where a state minimum wage hike occurred, with a similar group from a state where no such hike occurred. Or they compare a group of high with a group of low wage employers when a federal minimum wage hike occurred. Or they compare states with differing proportions of low wage workers when a federal minimum wage hike occurred. The authors find that employment increases with a minimum wage hike in all seven experiments; two of these increases are statistically significant [p. 338].

The "difference in differences" method of Card and Krueger controls for causes extraneous to the minimum wage hike better than did earlier work on employment effects of a minimum wage. A "natural experiment," however, lacks the social experiment's random assignment that implies that measured group mean differences are unbiased estimates of mean effects of causes. Also, the authors' Texas and New Jersey-Pennsylvania experiments phone surveyed managers of national fast food franchises. Such franchises may not represent low wage industries well, and phone survey data uncorroborated by employment records are suspect. Finally, the 38% response rate for "difference in differences" in the Texas experiment survey...