If your state recently raised its minimum wage, there’s a good chance new Nobel Prize winner David Card helped make it happen.
Card co-pioneered research in the early 1990s that showed raising the minimum wage didn’t necessarily cause businesses to lay off workers and hurt employment. Before his famous study, economists almost universally believed increasing the minimum wage cost jobs.
His findings later paved the way for many states to raise their minimum wage well above the federal floor of $7.25 a hour — a figure that hasn’t changed since 2009. This year some 24 states have raised their minimum wage.
Altogether, 30 states and the District of Columbia now have higher minimum wages than the federal government. Washington, D.C. has the highest one in the nation, at $15.20 an hour.
The research by Card into minimum wages and the effect of immigration on labor costs made him one of three recipients of the 2021 Nobel Prize in economics. The University of California professor of economics got the news on Monday.
It wasn’t always that way.
Before Card’s 1993 research paper, states did not raise minimum wages very frequently. And most were content to keep it the same as the federal government.
In 1992, New Jersey raised its minimum wage. Card and co-author Alan Krueger, both then professors at Princeton, compared employment between fast-food restaurants in New Jersey with those on the Pennsylvania line where there was no change.
“There was a set of employees on one side of the border who were raising wages and one side who weren’t,” the Canadian-born Card recalled at a news conference on Monday at Berkeley.
They also compared employment at New Jersey restaurants that had already paid workers more than the minimum wage with those that didn’t.
What they found: New Jersey’s minimum wage increase didn’t increase layoffs.
At a news conference on Monday, Card said his research with Krueger is not a clarion call for governments everywhere to raise the minimum wage. It’s more important, he said, to try to conduct real-world studies instead of relying on theoretical concepts embedded in their profession to get at the underlying truth.
What the evidence showed, Card said, was that businesses had more leeway in how much they pay employees. Some can pay a lot more than they do, some less so.
“This is a world in which employers have much more discretion in what wages they set,” said Card. whose somewhat novel approach to research nearly 30 years ago has not become mainstream.
The findings by Card are still not fully accepted by the economics profession, where it’s an axiom that raising the cost of something reduces demand.
Several other studies performed since his 1994 survey, for instance, contend a higher minimum wage tends to reduce employment. The Congressional Budget Office, the research arm of Congress, also assumes a higher minimum wage still leads to job losses.
So do Republicans at the state and federal levels. A handful of Republican-dominated states still have no minimum wage at all.
What other economists, including Card, point out is that a lot of variables come into play. Read this 2006 interview with Card.
Take the U.S. labor market right now. Many companies such as Amazon
AMZN,
and Target
TGT,
have raised wages for their lowest-paid workers to at least $15 an hour. And Wal-Mart
WMT,
last month said it would raise its lowest wage to $12 an hour.
What that clearly shows is these companies can increase wages without much if any loss of profit, economists say.
The stakes are higher for smaller businesses with lower profit margins and stiffer competition, however.
The National Federation of Independent Business, the nation’s chief lobbyist for small businesses, has lobbied hard against a Biden White House proposal to lift the federal minimum wage to $15 an hour.
“Companies listed on Wall Street may support a much higher minimum wage because it would give them a competitive advantage, but a hike would make it that much harder for Main Street to even continue to exist,” said Kevin Kuhlman, NFIB vice president of federal government relations.
Many small businesses may have no choice but to raise wages because of a nationwide shortage of labor, however. Millions of people who had jobs before the pandemic still have returned to work.
A record number of small businesses said they increased pay in August, the NFIB found, but even then, half of the companies reported they could not fill job openings.
This post was originally published on Market Watch
