top of page
  • rmacculloch

Was this year's Economics Nobel Prize a Mistake?

The minimum wage debate has been highly controversial in this country, like many others. Especially since our Labour government hiked the minimum wage recently. Business lobby groups in NZ argued strongly that such a policy would cause jobs to be lost. However, more left-leaning commentators argued at the time that they had science and "the experts" on their side, in the sense that increases in the minimum wage have not been found to cause jobs to be lost. The academic evidence they quoted came from David Card, who won the Nobel Prize in Economics this year. To the extent his finding is true, a rise in the minimum wage amounts solely to a wealth transfer from employers to employees.

However, the Wall Street Journal reports Card got it wrong. It says he "conducted a famous natural experiment by studying employment at fast-food restaurants in New Jersey & Pennsylvania before & after New Jersey raised the minimum wage while Pennsylvania didn’t. Contrary to what one might expect, employment in New Jersey’s fast-food restaurants rose slightly relative to employment in Pennsylvania’s. On this basis, they challenged standard supply-and-demand models of the effects of minimum wages. Unfortunately, Messrs. Card [and Krueger’s] data weren’t so great—they gathered it by phoning restaurants.

University of California Irvine economist David Neumark and Federal Reserve economist William L. Wascher, using the restaurants’ payroll data, found what most economists would have expected: The minimum wage increase in New Jersey caused employment to fall in the New Jersey restaurants relative to Pennsylvania restaurants’ employment".

So maybe in our present times when "experts" are daily being called upon to dispense their "objective" wisdom, notably on virus matters, one should keep in mind that the partisan affiliation of academic commentators can play an important role in terms of the nature of their advice. Especially when it comes to economics. In my view, the Nobel was a mistake, given the controversy that still surrounds the minimum wage issue. Since rightists can find evidence supporting their view & vice-versa for leftists on this matter, it diminishes economics to draw the subject into a court room drama whereby Prosecution & Defence can each call different "expert witnesses" to give opposing testimony.



bottom of page