The nobel and the minimum wage

Julio Raudales

One of the winners this year with the Bank of Sweden Prize in Memory of Alfred Nobel, better known as the “Nobel Prize in Economics”, has been David Card, a Canadian economist, currently a professor at the University of California at Berkeley, who obtained his Ph.D. from the prestigious Princeton University.

Professor Card is a very prolific scientist and well known in academic spaces. His contributions to research on the labor market and the influence of the migration of workers from poor countries to rich countries, generate much debate not only in the most famous universities, but also in political circles. I remember it very well, because I had to study with a “paper” of his called: Is immigration really so bad ?, in which he demystified many elements on that subject so much debated in the United States.

Another of David Card’s best-known studies, which he signed with the late economist Allan Kruger, is “Minimum Wage and Unemployment: A Case Study of the Pennsylvania Fast Food Industry” from 1994. And what was the conclusion? of this job? Well, a rise in the minimum wage approved in 1992 in the city of New Jersey, had no negative effects on employment.

So we already have the new telenovela ready !: all those who are “ideologically” in favor of raising the minimum wage, have grabbed like a burning nail, to the news of the prize awarded to say “a Nobel Prize in Economics gives us the reason: raising the minimum wage has no effect on employment, so go ahead! Let’s take away their ill-gotten gains from those greedy businessmen and improve the lives of exploited workers ”.

For example, on the day of the Nobel announcement, I read a famous national journalist commenting with euphoria on his social networks: “Nobel Prize to David Card, who showed that raising wages does not affect employment. A bad day for neoliberal economists who disguise their cruelty as technical arguments “and closed by saying” Mel was right to raise the minimum wage by 60% in 2009, which is why the rancid national oligarchy carried out a coup against him. “

Why is this argument, not only unfounded, but also unwise in this case? Well, because if a scientist is being awarded a Nobel Prize in recognition of his contributions to empirical work in economics, what cannot be done is to instrumentalize that rigorous work, to execute a methodological bungling, such as inferring universal and timeless conclusions, from a specific event, that is, a study carried out in a city and as a consequence of a single event.

Let’s see, let’s imagine that yes, Card and Kruger demonstrated in their famous work, that raising the minimum wage in New Jersey in 1992 did not increase unemployment among affected workers. In reality, they did not even do that, they showed that what did not increase, it was unemployment among workers in fast food restaurants, who were the ones who did the increase. But they did not analyze other sectors or possible effects derived from the decision made that year.

That is why I consider it essential to clarify this point. The work of Card and Kruger only points out the effects of said increase in one sector and cannot be considered as a universal proof. It is to this type of conclusions that epistemologists call “sophistry of composition”, that is, the abject habit of generalizing and always giving as valid the results of a single fact. Great economists like Keynes also fell into the temptation of calling the singular behavior of a crisis at a certain moment “General Theory”.

On the other hand, it is crucial to understand that the recognition of the Bank of Sweden and the Nobel Academy was given to the methodological contribution and not to the result itself. For the case, after the increase that was made in 2009 to the minimum wage in Honduras, the UNDP prepared a work following the same methodology of Card and Kruger, which was already very popular and the result was clear: more than 120 thousand workers passed to informality and increasing the poverty level in the country by 1.5 points. The same has happened in other cases in the world.

So it is important to read the why of the facts properly and not jump to conclusions without understanding exactly the effects of certain policy decisions that, being well intentioned, can lead to disastrous results.

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The nobel and the minimum wage