Ezra Klein fails causal inference 101

Tapped's Ezra Klein, who is usually sharp, offers a seriously misguided argument in favor of increasing the minimum wage:

[W]hile reasonable people can disagree on the impact of minimum wage laws, it's time they stopped. William Niskanen, in arguing against a federal boost to the wage, trots out the same old canards about wage increases decimating jobs. And yes, if you jack the wage up to $16 an hour, jobs will be lost. But up to $7 over a period of years? The evidence doesn't back him up. And, luckily, it's so easy to check that you folks can play along at home. Just crosscheck this list of state minimum wage laws with this rundown of state unemployment rates...

[A]ny attempt to correlate minimum wage increases with joblessness falls on its face. When Clinton raised the wage in the mid-‘90s, low income employment skyrocketed. Some catastrophe. And we can take this as far back as folks want. Check this graph, showing the real value of the minimum wage (now at a historical low). Its peak was 1968. The unemployment rate in ‘68? A brilliantly low 3.5 percent.

Unfortunately, correlation does not imply causation. The fact that some states have high minimum wages and low unemployment and others have the reverse does not prove that the minimum wage has no effect on employment. It's perfectly plausible that states with robust labor markets tend to increase their minimum wages. Afterward, they still have low unemployment, but it might have been even lower had there been no minimum wage. And unemployment might be even worse in states with low minimum wages and high joblesseness. The same argument applies to the point that the minimum wage's real value was highest in 1968, when unemployment was low. It might have been even lower without a minimum wage. We just don't know.

To properly assess the effect of changes in the minimum wage, you need an "all others things equal" situation -- essentially, a natural experiment. The canonical evidence supporting Klein's position is a David Card/Alan Krueger study of the restaurant industry in the labor market comprising Philadelphia and southern New Jersey. They found a minimum wage increase in New Jersey had no effect on employment relative to Pennsylvania, which did not increase its minimum wage.

However, such findings are controversial among economists. For instance, Paul Krugman writes that "most of [Card and Krueger's] colleagues are unconvinced; the centrist view is probably that minimum wages 'do,' in fact, reduce employment, but that the effects are small and swamped by other forces."

I think Krugman's view is probably right. But in any case, if we're going to have a serious debate about the minimum wage, we need to be talking about these types of studies, not correlations between minimum wages and unemployment.

Comments

[honestpartisan]

Good point. But to tweak Ezra Klein's point, a higher minimum wage does not preclude a robust market.

[Lettuce]

Of course, once you get past the naval gazing in this column, it's also "possible" that raising the minimum wage increases employment, we just don't know.

It "could" be that most the better workers don't want to work in states with the lowest wages and aren't willing to sit around and wait for wages to catch up.

And that, once they've bailed for the places with higher minimum wages they are a dynamic force in the market.

Or not.

But, to be fair, we just don't know.

Don't know how you missed that balancing point.

[Jon Henke]

Leaving aside the basic supply/demand argument and the moral argument against anti-choice meausures like a legal minimum wage, one of the more interesting arguments I've heard against the minimum wage is that since a large proportion of minimum wage earners are teenagers and college kids, higher minimum wages will increase drop-out rates. That seems like a consideration that should appeal to liberals.

A more holistic argument against raising the minimum wage is that it is simply a terribly inefficient way to increase well-being.

[Seth]

"Post hoc ergo propter hoc" - the informal logical fallacy of arguing that q was caused by p merely because q occurred after p.

[Alevin]

it's still the case that Ezra position is closer to reality than the position he's arguing against.

after all, according to economists who have studied the data the negative effects of raising the minimum wage "are small and swamped by other forces."

so i don't know if that makes Ezra's argument "seriously misguided." His evidence doesn't *prove* his point, as you note in this post, but it does *support* his point.