On Minimum Wage Sumner Finds His Soul Mate in Caroline Baum

     Yesterday I declared the new $15 MW for NY fast food workers Scott Sumner Day-as he loves the MW so much. Fittingly, on his SSD he did have not one but two posts bashing the MW.

     Both focus on Krugman's support-as this irks him and other conservative economics as Krugman is in the Neoclassical club and yet tells the public that the MW won't significantly increase unemployment.

     So fittingly, on his day, Sumner has an anti Krugman, anti Card-Krueger post both at Money Illusion and Econolog.

    At MI, he quotes from what he says is a letter Caroline Baum sent to the NYTimes. They didn't print it so he printed it himself.

   Here are some of the highlights from her letter, Her letter is a complaint about a recent post Krugman did in favor of MW hikes. She feels it's outrageous that he cited Card-Krueger:

  "So flawed was the study – it relied on telephone surveys of fast food restaurants in neighboring counties in New Jersey and Pennsylvania after New Jersey raised its minimum wage – that Card and Krueger were forced to redo it. Using official employment data the second time around instead of a telephone survey, they re-published their findings in 2000, claiming similar results to the first study."

   "Economists who have reviewed the body of literature on the effect of an increase in the minimum wage have criticized both the methodology and the results of the second Card/Krueger study. David Neumark and William Wascher, both widely respected for their work in the field, cite the vastly different patterns of teenage employment in the two states that pre-dated the study, disqualifying Pennsylvania as a good “control” group. They also find that the depressing effect of a minimum wage hike on employment occurs with a lag, not within Card/Krueger’s short-term time frame. (Neumark and Wascher’s study can be found here: http://www.nber.org/papers/w12663.pdf.)"

   "What’s more, unlike a randomized controlled trial for a new drug, Card and Krueger have no way of measuring what would have happened to fast-food employment in New Jersey absent a minimum wage increase."

   "It is disingenuous for Mr. Krugman to ignore the wide body of evidence demonstrating that an increase in the minimum wage deprives entry-level workers of an opportunity to enter the workforce. Instead he relies on the findings of an outlier study that contradicts basic economic theory. An increase in the price of any good or service, including labor, results in a decrease in demand for it."

   http://www.themoneyillusion.com/?p=29985

   Of course the C-K study was an outlier at the time it was written-prior to their study it was a unanimous opinion among mainstream economists that the MW was a job killer. In this view they were light years removed from American society which had installed a MW in the 1930s.

  C-K were seriously hated for that study in that they crossed an unspoken line. It's sort o like a cop crossing the 'blue wall' and speaking out against police brutality. C-K remember losing a lot of friends within the profession.

  "Krueger did the research with UC Berkeley's David Card, and Card shortly decided to abandon the subject because of the furious response it provoked.Here's his explanation for never wanting to do research on the minimum wage again:"

  "It cost me a lot of friends. People that I had known for many years, for instance, some of the ones I met at my first job at the University of Chicago, became very angry or disappointed. They thought that in publishing our work we were being traitors to the cause of economics as a whole. "

  http://www.motherjones.com/kevin-drum/2011/08/return-alan-krueger

  As you can see C-K is still a lightning rod for conservative economists-Sumner and his soulmate, Baum. 

  A lot of this is that in their mind C-K was the Original Sin of post C-K economics-before the profession was unanimous in opposition and since it has been only about 50-50. 

  They think if they can just drive a stake through C-K they'll go back to the profession being 100% against the MW. What they don't appreciate is that going after C-K now is like closing the barn door after the cow has already left. 

  "So flawed was the study – it relied on telephone surveys of fast food restaurants in neighboring counties in New Jersey and Pennsylvania after New Jersey raised its minimum wage – that Card and Krueger were forced to redo it. Using official employment data the second time around instead of a telephone survey, they re-published their findings in 2000, claiming similar results to the first study."

   You might argue why official data is superior to a survey done the right way. I mean isn't natural experiment the best way to test theories in economics-or science in general? The official data is just derivative after all. In any case, going after C-K is closing the barn door after it's too late as many other economists have since replicated their results. 

   http://robertvienneau.blogspot.com/2011/03/card-and-kruegers-research-on-minimum.html

   Meanwhile even a dopey liberal like me who's not an economist-you know I know nothing about economics I just love to engage in literature-has an answer for her criticism here:

   "What’s more, unlike a randomized controlled trial for a new drug, Card and Krueger have no way of measuring what would have happened to fast-food employment in New Jersey absent a minimum wage increase."

    First of all, testing new drugs in markedly a different animal than testing a theory of a social science like economics. 

    In any case why wouldn't you just look at fast-food employment in another similar area to NJ? Turns out that's just what they did:

    "I think of David Card and Alan Krueger's empirical demonstration that increased minimum wages do not reduce employment as having two main components:

• Natural experiments, especially one comparing and contrasting New Jersey and Pennsylvania.
• A meta-analysis of previous published research on minimum wages.

    "Recent researchers have replicated Card and Krueger's results for both components. And this recent research is more comprehensive and rigorous. (Since Card and Krueger's work, many economists have adopted the methods of natural experiments and meta-analysis, aside from the specific application to labor "markets".)"

    http://robertvienneau.blogspot.com/2011/03/card-and-kruegers-research-on-minimum.html

    So her criticism of their methods are totally off the mark. Natural experiments is the preferred way to test theories in economics and from what Noah Smith says, younger economics are becoming more and more empirical in their approach. 

   http://noahpinionblog.blogspot.com/2015/06/a-paradigm-shift-in-empirical-economics.html

   Ms. Braum writes about Krugman and the MW a lot it turns out-she really is a soul mate of Sumner-intellectually. She has written a whole lot of posts in this vein at her Bloomberg column. 

   http://www.bloombergview.com/contributors/caroline-baum

   But her claim here that he cites a no-evidence study is just false. To the contrary, C-K were an example of using empirical evidence-rather than just relying on what theory says should happen:

    When the price of labor goes up, the demand for it must go down.

   In a way it's amazing that the profession was against the MW as long as it was.Even this simple theory of supply and demand  provides for cases where you raise prices but demand doesn't go down-'inelastic goods'-how is she and Sumner so confident that labor is not inelastic?

  Well, there's a lot more to say about this but this one is long enough so I'll save it for a future post(s).