Card and Krueger got to know each other in the 1980s working side by side in the Industrial Relations Section of Princeton’s economics department, a think tank situated in Princeton’s Firestone Library that was endowed by John D. Rockefeller Jr. as a sort of penance for his role in the 1914 Ludlow Massacre. Card and Krueger were both “very empirical,” Card recalled, by which he meant they were more interested in gathering new information than in reconceptualizing existing data. They ended up co-authoring seven or eight papers together and a 1995 book, Myth and Measurement.
The book expanded on a 1994 paper that Card and Krueger co-authored on the minimum wage that changed completely the terms under which the minimum was discussed, first among economists and later among journalists and policymakers. The old orthodoxy, derived from a 1946 paper by George Stigler, a University of Chicago libertarian and Nobel laureate, and renewed in a 1982 paper led by University of Maryland economist Charles Brown, was that any minimum-wage increase would increase unemployment. “There’s a virtual consensus among economists,” The New York Times editorial board stated in 1987, “that the minimum wage is an idea whose time has passed.” The editorial was headlined, “The Right Minimum Wage: $0.00.”
This judgment was grounded in seemingly unassailable logic. If you raise the cost of something, then people will buy less of it. If the thing whose cost you raise is a new hire, then businesses will buy fewer new hires. Duh!
But like a lot of economic theory, this construct failed to consider a variety of countervailing real-world factors, such as the increased productivity that might result from lower turnover and a more highly motivated workforce. In 1992, New Jersey ignored the advice of The New York Times editorial board and raised its hourly minimum wage above the federal minimum of $4.25 to $5.05. (“Why doesn’t the state of New Jersey win the Nobel for doing that?” my wife asked me yesterday. A fair point. A moment of tribute, please, for the still-living former New Jersey Governors Thomas Kean, Republican, and James Florio, Democrat.)
Card and Krueger decided to compare unemployment levels at fast-food restaurants in New Jersey to those in bordering eastern Pennsylvania, where the wage minimum remained $4.25. They found that after New Jersey raised its wage, full-time employment actually increased a bit in the Garden State relative to eastern Pennsylvania. Evidence was mixed on whether the minimum-wage hike led to a price increase; although fast-food prices did increase in New Jersey relative to eastern Pennsylvania, there was no evidence within New Jersey that price hikes in those fast-food restaurants most affected by the minimum-wage increase were greater than in those least affected by it.