Rik W. Hafer

Alan Krueger, professor of economics at Princeton, has weighed in on the minimum wage debate.  Writing in the New York Times, Krueger fears that a $15 minimum wage “would put us in uncharted waters, and risk undesirable and unintended consequences.”  

Why is his opinion important?  Because he is the author of one of the most influential studies touted by those promoting an increase in the minimum wage.

Together with David Card of the University of California–Berkeley, Krueger analyzed the impact of an increase in the minimum wage on employment in fast-food restaurants. In 1992 New Jersey raised its minimum wage from $4.25 to $5.05 while Pennsylvania did not.  Their analysis found that fast-food restaurant employment growth in New Jersey was not adversely affected by the change.  This isolated case study from several decades ago has become, even though it is much criticized, the go-to piece of research touted by minimum wage advocates ever since. 

A proponent of raising the minimum wage, even Krueger recognizes that increasing it to $15 would likely do more damage to workers than good.  Especially to those workers at the low end of the pay scale.  Especially to those workers who live in a city like St. Louis, which is not a high-wage/high-cost city.  Increasing the minimum wage to $15 in St. Louis, as some have proposed, would devastate low-income workers in two ways.  First, some businesses would decamp to surrounding areas with lower minimum wages. And of the businesses that stayed in Saint Louis city, many would cut employees or reduce hours in order to control their labor costs. The trade-off for increasing the minimum wage to $15 is just too great to be sensible.

Krueger recognizes that there is a viable alternative to a minimum wage hike: the earned-income tax credit.  This tonic to the plight of the low-income family has been recommended by those on the left and the right as a better solution to the poverty problem than the use of a blunt tool like the minimum wage.  Christina Romer, another University of California–Berkeley professor and one-time chair of president Obama’s Council of Economic Advisors wrote in The New York Times in 2013 that the earned-income income tax credit “is very well targeted—the subsidy goes only to poor families—and could easily be made more generous.”

Krueger warns that the possibility of negatively affecting employment for low-income workers by raising the minimum wage to $15 “is likely to become more severe, and the risk greater.”  If proponents will not listen to the warnings of free-market economists, will they at least consider Krueger’s counsel before acting rashly?

About the Author

Rik Hafer
Research Fellow

Rik Hafer is a Show-Me Institute research fellow and a professor of economics and the Director of the Center for Economics and the Environment at Lindenwood University in Saint Charles, Missouri.