I am working on a paper for the Fraser Institute on the minimum wage debate. Both Krugman and Daniel Kuehn stressed the importance of picking a “treatment” versus a “control” group, in order to see that the minimum wage really doesn’t have much impact on employment (at least for modest hikes). Of course the pioneering study in this tradition is the famous Card-Krueger paper, which argued that the 1992 minimum wage hike in New Jersey didn’t affect fast-food employment relative to the control group in neighboring Pennsylvania, where the minimum wage wasn’t raised.
Now I’ve been immersed (again) in this literature for weeks, and what you need to realize is that the prima facie regression results almost all show that yes, making unskilled labor more expensive causes employers to hire fewer unskilled workers. It’s only when you add sufficient “controls” that the result disappears.
In that light, on a hunch I decided to take 5 minutes and check FRED. Why look at this:
So, if you ever forget the year when New Jersey raised its minimum wage and thus gave the “natural experiment” for the famous Card-Krueger study, you can just look up to find the first time in over a decade when New Jersey’s unemployment rate surpassed Pennsylvania’s.
I know, I know, I couldn’t get this published in Econometrica. But this literature is chock FULL of misleading coincidences just like this, ones which all make it LOOK LIKE employers cut back on hiring when workers get more expensive, even though we have been told the empirical debate is settled.
(Also, less sarcastically, I realize there is a distinction between the unemployment rate and the level of employment. However, as I explain in this EconLib article, I don’t think we should so casually toss aside the welfare implications of rising unemployment.)