Paul Krugman on the minimum wage: 1998 vs. 2015
 Below is the blog post “ Which do you prefer? Krugman circa 1998 or Krugman circa 2015?” reproduced here in its entirety from the Bluecravat blog, supplemented by my Venn diagram above:
Paul Krugman has once again regurgitated his views on the minimum wage on the inside back page of the New York Times. He reiterated his belief that there is absolutely no evidence that increases in the minimum wage level would have a negative impact on employment despite there being plentiful evidence to the contrary.
This is not new news, but what is of note is his attempt to explain how he came to hold this view:
Until the Card-Krueger study, most economists, myself included, assumed that raising the minimum wage would have a clear negative effect on employment. But they found, if anything, a positive effect. Their result has since been confirmed using data from many episodes. There’s just no evidence that raising the minimum wage costs jobs, at least when the starting point is as low as it is in modern America.
The Card-Krueger study was published in 1993. In 1998, five years later, Krugman wrote a book review in which he castigates the authors, Robert Pollin and Stephanie Luce, for suggesting that an increase in minimum wage would have no impact on employment:
So what are the effects of increasing minimum wages? Any Econ 101 student can tell you the answer: The higher wage reduces the quantity of labor demanded, and hence leads to unemployment. This theoretical prediction has, however, been hard to confirm with actual data. Indeed, much-cited studies by two well-regarded labor economists, David Card and Alan Krueger, find that where there have been more or less controlled experiments, for example when New Jersey raised minimum wages but Pennsylvania did not, the effects of the increase on employment have been negligible or even positive. Exactly what to make of this result is a source of great dispute. Card and Krueger offered some complex theoretical rationales, but most of their colleagues are unconvinced; the centrist view is probably that minimum wages “do,” in fact, reduce employment, but that the effects are small and swamped by other forces.
What is remarkable, however, is how this rather iffy result has been seized upon by some liberals as a rationale for making large minimum wage increases a core component of the liberal agenda…
So Krugman has evolved from a position he felt was obvious to “any econ 101 student” and now argues that a study he himself described as “iffy” provides definitive proof that an increase in minimum wages would have no impact on employment.
He explains this apparent defiance of the basic laws of supply and demand by saying “the market for labor isn’t like the market for, say, wheat, because workers are people.” However, in his 1998 crucifixion of Pollin and Luce’s book he wrote:
…Clearly these advocates very much want to believe that the price of labor–unlike that of gasoline, or Manhattan apartments–can be set based on considerations of justice, not supply and demand, without unpleasant side effects…
Sounds like Krugman is describing himself in 2015.
It gets better. In todays op-ed Krugman argues that companies forced to pay higher wages will actually benefit through “better morale, lower turnover, and increased productivity” – however back in 1998 he ridicules Pollin and Luce for suggesting the very same thing:
…They also argue that because there are cases in which companies paying above-market wages reap offsetting gains in the form of lower turnover and greater worker loyalty, raising minimum wages will lead to similar gains…
An argument he rightly crushes with the following:
The obvious economist’s reply is, if paying higher wages is such a good idea, why aren’t companies doing it voluntarily? But in any case there is a fundamental flaw in the argument: Surely the benefits of low turnover and high morale in your work force come not from paying a high wage, but from paying a high wage “compared with other companies” — and that is precisely what mandating an increase in the minimum wage for all companies cannot accomplish…
Krugman’s concluding sentence in his scathing 1998 book review is typical of his pre-nobel prize brilliance and one he should re-read today:
In short, what the living wage is really about is not living standards, or even economics, but morality. Its advocates are basically opposed to the idea that wages are a market price–determined by supply and demand, the same as the price of apples or coal. And it is for that reason, rather than the practical details, that the broader political movement of which the demand for a living wage is the leading edge is ultimately doomed to failure: For the amorality of the market economy is part of its essence, and cannot be legislated away.
At the very least Krugman should apologize to Pollin and Luce.
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