What will a 10% ... 50% ... 100% increase in the minimum wage do?

Are the results believable? They are generated by well-designed analyses, but even the best natural experiment does not have the power of a controlled laboratory experiment, so we (and the authors) must apply some prior judgement. It could be, for instance, that the minimum wage is not truly exogenous (as they suggest in some cases), or that BR level employment effects simply take longer to take effect.

To economists with an SR orientation, the results will fit with priors and thus surely pass any believability test. To those who work with data, the quality of the analysis makes the results believable, largely because the design of most of the studies is such that "ceteris paribus" is much more than a theorists fable. I read table 12.1 as rejecting negative effects rather than showing that minimum wages raise employment and would be surprised if further work found much additional evidence that minimum wage increases were associated with employment gains. But empirical analysis is full of surprises.

Economists with a BR orientation who give more weight to priors than to evidence will find the results troubling. But they cannot simply denounce the findings. One virtue of Card and Krueger's book is that it has shifted the burden of proof about the employment effects of the minimum wage. Even a cursory look at data from the last decade provides support for their position as opposed to a BR view of the U.S. minimum. During the 1980s, the Reagan Administration cut the real minimum wage. Employment of the group most affected, teenagers, fell relative to that of adults. Unemployment rates improved at most a whisker relative to those of adults. At the end of the decade/early 1990s, the federal minimum was increased and several states raised their minimum. If you thought these changes would have noticeable adverse effects on employment, Card and Krueger show otherwise. To answer a slightly paraphrased version of Charlie Brown's 1988 question, "yes, Virginia, the employment effects of the minimum wage were overrated".

Maybe there is a case for BR employment changes to the minimum over some long time horizon. This book does not reject the possibility that ten years after, say, New Jersey raised its minimum (and maintains the level of the minimum relative to other wages), employment in low wage sectors might be lower than it would otherwise be. To test this possible BR claim will, however, be exceedingly difficult, because economies change so much over a decade (Card and Krueger mention inflation; I would stress structural changes) that even the most creative economist will find it hard to make ceteris paribus all that believable. For this reason, I would bet the family house that no one will find large employment effects of the minimum wage over longer periods (if they can find such) with the authority that Card and Krueger have rejected employment responses in the time periods they explore. Empirical analysis of quantitative responses to price incentives is most convincing over periods when the structure of the economy, technology, etc can safely be viewed as fixed.

In an era with rising inequality, it is natural to look anew at the minimum wage as a possible way to improve the earnings of low paid workers, and thus at the policy implications of a major volume on the minimum. The authors suggest that their results should lead to "a reorientation of policy discussions away from the efficiency aspects of the minimum wage and toward distributional issues" (p 393). I hope this is the case. In recent years the BR view has dominated much public discussion -- supply side economics typically posit large responses to prices, taxes, regulations etc. Discussions of regulations and administered wages or other mandatory labor costs are often said to explain European unemployment problems. Textbook discussion of minimum wages has the same flavor: stressing job losses not wage gains. Increases in the minimum thus seem exceedingly dangerous, and its supporters are often viewed as populists with little knowledge of economics. This book goes a long way to redressing this imbalance. Perhaps it will be part of an overall resurgence of SR economics. At the least, it should make it respectable to discuss the minimum wage as a policy option, with benefits and costs, in an era of rising inequality.

What factors ought we to consider as part of a "reorientation" of public discussion?

There are, in my view, five issues in assessing the policy of using the minimum wage to help low paid workers.

1. Does the minimum redistribute income to low wage workers? It will do so if the estimated elasticity is below one. The book shows that modest increases in the minimum are likely to have no effect on employment. While there are researchers, notably Neumark and Wascher, who argue the opposite, the debate is over whether there is "no" effect, modest positive employment effects, or small negative effects, to the minimum. It is not about whether or not there are large negative effects.

2. Does the minimum divide the work force into insiders, employed permanently at the minimum, and outsiders, longterm jobless because of the minimum?

In the U.S. labor market with high turnover, particularly in low wage jobs, it is hard to make the case for such a division; even analysts who believe in segmented labor markets do not draw the European insiders (employed) - outsiders (unemployed) division. The studies by Topel and Juhn, Murphy, and Topel of employment at the lower end of the wage structure make it clear that low and falling wages, not excessively high minimum or other administered wages, have reduced employment at the bottom tier of the wage distribution.

3. Are low wage workers low income workers? No one who advocates the minimum wage wants to raise the pay of teenaged kids in upper income families at the expense of lower income consumers. If the result of an effective minimum is that Harvey Poor pays more for his hamburger so Melissa or Roderick Well-to-Do can earn more pocket money, the minimum will be redistributive, but in a regressive direction. In chapter 9 of the book, Card and Krueger show that currently many workers paid around the minimum are, in fact, from low income families: one-third of workers whose wages were affected by the 1990 and 1991 increases in the minimum came from the bottom 10 percent of the earnings distribution. The widening dispersion of wages has meant that more low skill young adults earn "teenage" wages. Card and Krueger do not explore the distribution of consumer products that use minimum wage type labor. I would expect lower income families to purchase more such products, but I would also expect the differences in consumer spending patterns to be modest.

4. How does the minimum fit with other economic policies? We all know that, despite the valiant efforts of the Invisible Hand, at best we live in a second best world. The effects of the minimum wage or of any other policy must be judged in the context of numerous other policies and institutions. Many on both sides of the aisle in the Congress favor Earned Income Tax Credits as a way to improve the economic well-being of low wage workers. EITCs subsidize low wage employers. Minimum wages "tax" those employers. The two policies would seem to complement one another. While no one has analysed the quantitative interactions between these (and other) policies, my guess is that the minimum looks better in the second best world in which we live than it does in most textbooks.