Research Literature: The Minimum Wage Debate

Does increasing the minimum wage reduce consumption?

Card and Krueger’s 1994 study attempted to show that an increase in the price of a normal good does not lead people to reduce the number of units purchased. U.S. Politicians used this study to argue for increases in the minimum wage. The results of the study, however, are contrary to common sense and economic theory.

In addition, direct replications found that the Card and Krueger study results are only valid for small fast-food restaurants; that is, the results cannot and should not be generalized to the broader economy (see, e.g. Ropponen, 2011). Ziliak and MCloskey (2007) concluded that Card and Krueger made improper use of their statistics. Finally, a meta-analysis of 1851 price elasticities estimated from 81 studies of various markets found an average price elasticity of -2.6, with a range from -0.25 to -9.5.

Bottom line: The Card and Kruger estimate of zero is an extreme departure from cumulative knowledge.

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