By Annie Lowrey
New York Times, December 17, 2013
About 20 years ago, in the midst of a recession, New Jersey decided to boost its minimum wage to $5.05 an hour from $4.25. Its neighbor to the west, Pennsylvania, chose not to tinker with its wage floor. Two bright young economists at Princeton, David Card and Alan B. Krueger, recognized in that dull occurrence a promising natural experiment. The two found fast-food joints along the New Jersey-Pennsylvania border, and surveyed them twice over the course of 11 months about how many people they employed. They figured that when New Jersey’s minimum wage went up, Garden State burger joints would hire fewer workers. The ones on the Pennsylvania side, acting as a kind of control, would see no change.
They were wrong. To everyone’s surprise, there was actually no change in employment in the New Jersey restaurants, relative to the Pennsylvania ones. ... That paper completely upended prevailing economic thought on the issue of minimum wages, leading to a flurry of studies and counterstudies, editorials and countereditorials. ... Since those days, the economy has grown about 63 percent in real terms, not that anyone working at a McDonald’s in Trenton would have noticed. Their 1992 raise brought their wage to about $8.40 an hour, adjusted for inflation. Today, they earn $7.25 an hour, the federal minimum.
Recently, New Jersey voted by public referendum to raise its baseline wage by a dollar and peg it to inflation. On a national level, stagnant wages and a generally crummy economy for millions of workers have spurred politicians to push for a $10 federal minimum wage. …
What Krueger and Card did was undermine the once-dominant rationale against raising the minimum wage: that it might lead to fewer workers being employed. … But other, larger studies have since confirmed Krueger and Card’s results, and there are signs that the prevailing wisdom in labor economics has shifted over time, too - away from treating labor as a commodity like any other. …
Craig Jelinek, the C.E.O. of Costco, agrees. “Paying employees good wages makes good sense for business,” he said earlier this year, calling for a federal minimum-wage increase. (Costco pays a starting wage of $11.50 an hour in all states where it does business.) “We know it’s a lot more profitable in the long term,” Jelinek said, “to minimize employee turnover and maximize employee productivity, commitment and loyalty.” He should know; he started his career as a checkout boy. ...
Annie Lowrey is an economics reporter for The Times.
Copyright 2013 The New York Times Company