- - Monday, July 17, 2017


It was “fake news” before anyone was familiar with the term: The claim that a 19 percent minimum wage increase in New Jersey in 1992 caused an increase in fast food employment compared to neighboring Pennsylvania.

That was the conclusion reported by economists David Card and Alan Krueger, which supposedly tossed cold water on the economic consensus that minimum wage increases cause job loss for the less-skilled. Since publication, the study has been cited by President Clinton, President Obama, their respective labor secretaries, as well as countless labor unions and advocacy groups as the intellectual underpinning for a mandated wage hike.

After the release of a recent University of Washington study documenting the consequences of a big wage hike in Seattle, the Card and Krueger study was again trotted out to refute the idea that labor cost hikes do cause pain for the least skilled.

There’s just one problem: The economists’ core conclusion — that a wage hike had hiked hiring — was subsequently debunked in the same academic journal that published it.

Some background: Rather than relying on government data or payroll records, the original Card/Krueger paper used data from a telephone survey conducted by college students of fast food restaurants in New Jersey and Pennsylvania. Store managers were asked how many full-time and part-time people they employed — once before the wage hike took effect and again afterwards.

But neither the students nor the economists managing them defined what “full time” or “part time” meant; managers were allowed to use their own definitions in the pre- and post-survey. Additionally, different managers in the same store may have been polled in the pre and post wage hike surveys.

This inconsistency and lack of clarity in the wording of survey question produced laughable results. One Burger King location in New Jersey reported a change from 6.5 full time employees before the wage hike to 30 full-time employee after the wage hike. A Wendy’s location in the state reportedly went from zero full-time employees before the wage increase to 35 afterward — with no change in their number of part-timers.

Similar anomalies are found throughout the data. Of course, if the survey numbers were skewed in both directions, you could by sheer luck end up with averages that looked somewhat less bizarre.

But it’s not just the jobs numbers that were jumbled. An underreported piece of the story is that Mr. Card and Mr. Krueger also sought to study businesses’ pricing shifts in reaction to new labor costs. To accomplish this, the student survey team asked about changes in the price of a hamburger. But just like with the employment question, their survey document didn’t define what a “hamburger” was.

Managers at each store thus picked from different (and differently-priced) options when answering the question. As a consequence, “hamburger” prices showed movements up and down by as much as 113 percent in an industry that strains to avoid price changes that are noticeable.

These flaws became apparent to me after comparing the Card/Krueger data to a sample of actual payroll data from affected restaurants in New Jersey and Pennsylvania.

In an independent inquiry to further check the telephone survey results against reality, economists David Neumark (then at Michigan State University) and William Wascher (Federal Reserve Board) studied a larger sample of payroll records and found that there had indeed been job loss in New Jersey’s fast food sector after the minimum wage hike — in line with the overwhelming majority of economic research.

After the holes in the survey document were initially exposed, the media reports were unforgiving: The study was described as “snake oil” and “grossly inaccurate,” with conclusions that had been “dropped faster than a mis-flipped burger.” The economists even backed off of their original eye-popping conclusion that a higher minimum wage had boosted employment.

Yet despite this sordid history, the lie lives on. The authors recently took time to respond to a letter of mine in The Washington Post to defend their flawed results. Obviously they need public relations advice against doubling down on a losing hand.

I’m under no illusions that this column is the last stake in the heart of what is surely the most-cited and most-flawed minimum wage commentary in history. Fortunately, you don’t need a degree in economics or courses in statistics to appreciate the lesson of “garbage in, garbage out.”

The fact that minimum wage proponents continue to quote this study shows just how shallow the research is for their position. Alternatively, they simply don’t understand the basis for the study that they keep relying on.

• Richard Berman is the president of Berman and Company, a public relations firm in Washington, D.C.



Click to Read More

Click to Hide