About 20 years ago, in the midst of a recession, New Jersey decided to boost its minimum wage to $5.05 an hour from $4.25. Its neighbor to the west, Pennsylvania, chose not to tinker with its wage floor. Two bright young economists at Princeton, David Card and Alan B. Krueger, recognized in that dull occurrence a promising natural experiment.
The two found fast-food joints along the New Jersey-Pennsylvania border, and surveyed them twice over the course of 11 months about how many people they employed. They figured that when New Jersey’s minimum wage went up, Garden State burger joints would hire fewer workers. The ones on the Pennsylvania side, acting as a kind of control, would see no change.
They were wrong. To everyone’s surprise, there was actually no change in employment in the New Jersey restaurants, relative to the Pennsylvania ones. The price of low-wage work had gone up, and somehow, demand had remained the same.
That paper completely upended prevailing economic thought on the issue of minimum wages, leading to a flurry of studies and counterstudies, editorials and countereditorials. (It even got personal, Card said, describing the debate among economists as a “very, very nasty spat.”) Since those days, the economy has grown about 63 percent in real terms, not that anyone working at a McDonald’s in Trenton would have noticed. Their 1992 raise brought their wage to about $8.40 an hour, adjusted for inflation. Today, they earn $7.25 an hour, the federal minimum.
Recently, New Jersey voted by public referendum to raise its baseline wage by a dollar and peg it to inflation. On a national level, stagnant wages and a generally crummy economy for millions of workers have spurred politicians to push for a $10 federal minimum wage. Fast-food workers are organizing and lobbying for $15. But even given Krueger and Card’s work, economists wonder how much an increase can really help the economy, considering how many Americans are out of work right now.