The lie that never dies

Despite a Congressional Budget Office (CBO) report that estimated a half-million jobs would be lost if the minimum wage was increased by 40 percent, President Obama is still out stumping for the policy. He visited Connecticut this week to make the case, and his economic advisor Gene Sperling had a call with reporters the day before to do the same.

Defending their push for a higher wage mandate, the White House has pointed to a 1994 study of New Jersey’s fast food industry which found that a wage hike increased employment. It’s a convenient story for the president, but it’s also incomplete: This infamous study was eventually refuted in the same academic journal where it was published.

Unfortunately, that hasn’t stopped advocates from trotting out the study as if it’s settled science.

{mosads}The story begins over 20 years ago, when New Jersey increased its minimum wage in 1992. This policy change created an interesting natural experiment to study the impact of a wage hike: Localities in New Jersey now had higher labor costs than similar localities right across the river in Pennsylvania. Princeton’s David Card and Alan Krueger, working with a team of student researchers, dialed restaurants on either side of the border before and after the scheduled increase to collect information on the impact to jobs and burger prices.

Their research team initially found that employment increased right along with the higher minimum wage—relative, at least, to similar outlets in adjacent Pennsylvania. Then-President Bill Clinton zeroed in on this result to marshal support for his own proposal to increase the federal minimum wage.

But something wasn’t right: After all, Congress’s Minimum Wage Study Commission had a decade earlier conclusively found a reduction in youth employment by as much as 3 percent for every 10 percent increase in mandated wages. To investigate why the Card-Krueger study got the results it did, the Employment Policies Institute (EPI) collected actual payroll data from one-quarter of the same franchised locations Card and Krueger’s team had called up. The results diverged dramatically.

It turned out that the research assistants working for the Princeton economists had posed questions to restaurants that were too ambiguous in their phrasing: “Full-time” and “part-time” employment weren’t defined, and neither was the type of burger the researchers were seeking a price for. Nor was there any control to speak with the same person before and after surveys.

As a consequence, the Card-Krueger data showed implausibly wild swings in employment in different stores—75 percent decreases in part-time staff, for instance, and an increase in full-time workers from 0 to 35 in a single year. At one outlet, they reported an 88% increase in the price of a hamburger.

When EPI presented these findings in a hearing before Congress’s Joint Economic Committee, expert analysis turned on a dime. Instead of a “most compelling study,” as media figures had called Card-Krueger, editorials now saw “snake oil” that had been “dropped faster than a mis-flipped burger.”

The hits kept on coming. Economists David Neumark and William Wascher, then of Michigan State University and the Federal Reserve Board, released a detailed independent analysis of the restaurant payroll data in that same economic journal that first published Card-Krueger. Rather than boosting employment, they found, New Jersey’s mandated wage hike decreased it—much as sound economic theory predicts.

Today, an overwhelming preponderance of the empirical evidence still shows the real economic impact of minimum wage hikes. Over the last two decades, according to economists at the University of California-Irvine and Federal Reserve Board, 85 percent of the best studies show job losses rather than gains following increases in minimum wages.

Under pressure from the nonpartisan CBO, Democrats and the President have decided to keep the Card-Krueger lie alive. The young people who will bear the brunt of a higher minimum wage, however, have already faced a greater than 20 percent unemployment rate for over five years. Especially in today’s uncertain economic climate, America can’t afford for this lie to live on any longer.

Saltsman is research director at the Employment Policies Institute, which receives support from businesses, foundations, and individuals.