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Krugman and The Fallacy Of The Crucial Experiment

December 2nd, 2013 · 5 Comments · Uncategorized

Krugman decided to write about the minimum wage today.

As one would expect, he is all for raising it. He provides non-controversial assertions that:

  • It’s low by historical standards.
  • Foreign competition is not a relevant factor.
  • He likes the E.I.T.C. and it compliments the minimum wage nicely.
  • The public favors it.
  • A higher minimum wage raises earnings.

So far so good, but unfortunately as an economist it’s hard for him not to escape talking about the economics of it all. That’s where he gets a little lazy. He begins by providing some decent rhetorical cover:

Doesn’t that violate the law of supply and demand? Won’t the market gods smite us with their invisible hand? The answer is that we have a lot of evidence on what happens when you raise the minimum wage. And the evidence is overwhelmingly positive: hiking the minimum wage has little or no adverse effect on employment, while significantly increasing workers’ earnings.

“A lot of evidence?” Okay! Nice. Finally. Krugman the Nobel winning economist will no doubt provide us with more than that ONE STUDY that all minimum wage advocates throw out incessantly. There have to be scores of them, right?

While there are indeed more wage studies that back up the notion that traditional supply and demand curves don’t exist in the labor market, he provides none. For those who are after data and peer-reviewed research, He links us to a page that cites two (2) studies as evidence. One is (you guessed it) that tired old Card and Krueger research. The other takes us to a 404 page.

What does Krugman’s “a lot of evidence” page link to that’s not a 404? How about a meta-analysis of scores of research papers that concludes: Based on their comprehensive reading of the evidence, Neumark and Wascher argue that minimum wages do not achieve the main goals set forth by their supporters. They reduce employment opportunities for less-skilled workers and tend to reduce their earnings; they are not an effective means of reducing poverty; and they appear to have adverse longer-term effects on wages and earnings, in part by reducing the acquisition of human capital.

In the field of scientific criticism, Krugman and his acolytes are invoking something called the Fallacy of The Crucial Experiment. This is where one claims an idea has been proven by a single pivotal discovery.

Following the theme of The Crucial Experiment, two can play. For some time, I’ve wanted to challenge the folks who lean so heavily/exclusively on Card and Krueger to a little game. For every study you invoke that apparently invalidates the law of supply and demand (where the minimum wage has no negative effect on employment), I’ll match it. Below is my counter to Card Krueger, plus an extra. Now I’m one ahead of Krugman. Happy to keep playing in the comments.

“We confirm our earlier findings that business assistance living wage laws boost wages of the lowest-wage workers, at the cost of some disemployment…” Here.

These disemployment effects in turn imply `minimum wage’ elasticities of about -0.4 (ranging from -0.3 to -0.5). Here.


5 responses so far ↓

  • 1 Floccina // Dec 2, 2013 at 11:48 am

    Shouldn’t one party in the debate defend the position that it is better to increase the income of low skilled workers even though it decreases employment because more people get a raise than miss out on a job. The other side can argue that more employment is a better because it is far worse to not have a job than have a job that pays very low.

    I would prefer such a debate to what we have.

    One side could then argue say that 9 jobs at $10/hour is better than 10 jobs at $7/hour. The other side could make the case that 10 jobs at $7/hour is better than 9 jobs at $10/hour.

  • 2 Steve Broback // Mar 16, 2014 at 11:18 pm

    Floccina makes an excellent point. That is precisely the debate we should be having. The CBO makes that point. Instead we are forced to be distracted re-litigating something that modern economic theory has settled, the predominance of evidence/research has settled (see CBO again), and is logically consistent (people buy less of stuff that costs more.) Oh, and this from Krugman:
    What is remarkable…is how this [Card and Kruger’s] rather iffy result has been seized upon by some liberals as a rationale for making large minimum wage increases a core component of the liberal agenda…. Clearly these advocates very much want to believe that the price of labor–unlike that of gasoline, or Manhattan apartments–can be set based on considerations of justice, not supply and demand, without unpleasant side effects.

  • 3 Jack PQ // Dec 3, 2013 at 7:16 am

    Playing devil’s advocate, it is true economists (among others) believe that a single very well done study (identified, to use the jargon) trumps hundreds of poorly-done studies (having no identification).

    This is true for minimum-wage laws and for any other issue where a cause-and-effect relation is to be showed (classroom size and student performance, to use another popular issue).

    However, in this case, the Card-Krueger is not even that flawless, and there are many other studies with careful identification, that find a negative effect of min wage laws.

    Charitably, you can say the jury’s still out. I personally like the analogy someone made of a kid’s microscope to argue when you find no effect, it is likely because you are using a kid’s microscope to look at bacteria–low power, to use more jargon.

  • 4 Steve Roth // Dec 7, 2013 at 2:04 pm

    ” that ONE STUDY”

    It’s really good to know what you’re talking about before making these kind of statements. Embarrassing.

  • 5 Steve Broback // Dec 8, 2013 at 6:06 pm

    Krugman cites **one** study as “a lot of evidence”. The one study all the minimum wage proponents lean on continually. There are many, many other research papers that could buttress their position, but for some reason this one is predominately viewed as more than sufficient evidence. I don’t think its laziness, but can’t explain it.

    You tweet about a person, too much to ask for a link to Dube research? I posted two studies. That makes me still ahead by one.

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