B (2:50)

Sure. I'm Alan Krueger. I'm a professor of economics at Princeton University. I've been here for 31 years, and fortunately, I've been able to take a leave from time to time and serve in the government as well.

A (3:05)

You've been at Princeton 31 years?

B (3:07)

31 years since 1980.

A (3:09)

You go to kindergarten there.

B (3:12)

Time flies. Time flies. Yep. I'm now, you know, I look around, I'm like one of the oldest people here.

A (3:22)

That is amazing. Wow. Home sweet home. Well, good for you. Well, listen, I want to start off this conversation with a quote from an economist. I want you to name the economist and I quote, the inverse relationship between quantity demanded and price is the core proposition in economic science which embodies the presumption that human choice behavior is sufficiently rational to allow predictions to be made. Just as no physicist would claim that water runs uphill, no self respecting economist would claim that increases in the minimum wage increase employment. So such a claim, if seriously advanced, becomes equivalent to a denial that there is even a minimal scientific content in economics. Who was that economist?

B (4:18)

I believe that was James Buchanan.

A (4:21)

You are correct, sir. Ding, ding, ding. Yeah. And where did that quote appear? Do you remember.

B (4:30)

My guesses? On the editorial pages of the Wall Street Journal.

A (4:33)

Yes. And why did he write it?

B (4:35)

You know, it's a funny story. The Wall Street Journal ran a series of criticisms of my work with David card in the mid-90s, like a whole pageful. And that one came in late. That one was printed separate from the rest. So it was, you know, I guess felt by the Wall Street Journal editorial board so important to just pile on to come up with yet another criticism of us. And that one was so far over the top, I mean, you read the nicest parts of it and it just shows, I think, such a different perspective about what science is.

A (5:14)

Yes.

B (5:15)

To me, science is to be tested.

A (5:16)

Yes.

B (5:17)

And to just assert things from principles without testing just to me makes absolutely no sense. There are perfectly respectable economic models which have a role where the minimum wage can lead to higher employment, can help companies fill vacancies, for example, or in models where aggregate demand is weak for whatever reason and wages are too low, minimum wage could lead to more consumer spending and higher economic activity. So it was just so bizarre to me. And there were parts of it which were much more insulting actually than the part that you read.

A (5:59)

Well, you know what? I can't resist just pointing out how angry this is. Right. Like what a remarkable sort of ad hominem attack this is.

B (6:18)

Well, you skipped over the ad hominem part. The ad hominem part accused David Card and me of being camp following whores. Literally. That's what he wrote. And it was just stunning to me. Our work wasn't supported by the AFL cio. Our work wasn't supported by any interest group. Yet to make the accusation, make the accusation that the only people who could possibly, you know, interpret the evidence the way we interpret it must be people who are carrying the water for somebody or, you know, use much, much more provocative language I thought was just totally unprofessional, totally out of place and a sign of insecurity, I think, in his beliefs.

A (7:07)

Yeah, but isn't it more than insecurity? Isn't it the defense of a worldview and a set of ideas that enforce a status construction that you really prefer? Because at the end of the day, the power of the claim raising wages kills jobs is that it enforces a status construct. Right. It anchors the moral claim that, well, I would raise your wages, except then that would be bad for you and therefore I won't and profit should be high and wages should be low. What do you think about that?

B (7:56)

You know, I guess my interpretation is the. And the reason why I said insecurity is that if your position was so strong, you don't have to be so over the top.

A (8:07)

Yeah.

B (8:08)

The evidence would speak for itself.

A (8:10)

Yes.

B (8:10)

And he didn't want to go to the evidence. He didn't want to allow evidence to be admissible. And to me, that's an indication that you think the evidence is not strong enough. And the other part of the insecurity, I think is. And this might relate to what you were saying, Nick, if you take out this block from their edifice, the whole thing crumbles.

A (8:34)

Right. At the end of the day. That's it. That's it.

B (8:38)

And I think that's where the insecurity came from, because here was a test, pretty compelling one. And in fact, when David Card and I presented work years and years ago in the early 90s, Marvin Kosters from the American Enterprise Institute was one of our early discussants. And, you know, he was really torn, and you could see he was visibly torn because he thought the methods we were using were pretty compelling.

A (8:59)

Yes.

B (9:00)

So. And to his credit, you know, he recognized that this is going to be hard to square with his worldview.

A (9:08)

Yes.

B (9:09)

And there are some people, I think, who just have difficulty not fitting the world into a particular structure and take sort of a religious fervor to their approach to economics, which I think is just totally unwarranted. I think that's just not the way the economy operates. That's not the best way to model the economy. But there's a strand. And Buchanan represented that.

A (9:38)

Yeah, it's so interesting. So, again, to listeners who are not as familiar with your legacy of work, I just want to remind everybody that Alan Kruger here and his colleagues were among the first investigators of the relationship between raising wages and jobs. And, you know, to my mind, demonstrated that there wasn't any real impact on the number of jobs around when you raised wages. And I think that early study which came out when the first one, the.

B (10:15)

New Jersey, Pennsylvania comparison, which is the one that's received, you know, the lion's share of the attention that was published in 94, right.

A (10:22)

And since then there's been, you know, more and more and more, just a huge pile of empirical evidence that essentially corroborates that early conclusion that you really can't find very much if you can find any job loss at all. It's in the realm of noise. And certainly that's been our experience in Seattle where we raise the minimum wage. In what has to have been one of the most stark natural experiments ever conducted. We raised the minimum wage to $15 an hour, by the way, $15 an hour for tipped workers too, who other places earned 213 plus tips. So not 7% more, but 700% more. And unemployment fell by, you know, from 4.9 to 3.6% during the intervening period. And all of the good data suggests that nothing happened except things got better for low wage workers.

B (11:22)

I think that's what the vast majority of studies have found since the work that Card and I did. By the way, Nick, I'll tell you an interesting story backstory to this. When I started working in this area, my expectation was the conventional wisdom, that's what I had been taught. And the work prior to what Card and I had done was primarily based on time series analyses. You look at periods when the federal minimum wage was relatively high were relatively low. A little bit more complicated than that, but that's the basic idea. And then you could see whether teenage employment was relatively high or relatively low in those periods. Trying to control for some other things, and there was a long tradition of running those kinds of time series models. I was never terribly convinced of them, but they tended to find small elasticity of demand. They tended to support the conventional wisdom that higher minimum wage reduced teenage employment. And people would argue about the magnitude, but there was a consensus that that's what it show. And then a funny thing happened. In the 1980s, the minimum wage did not increase in nominal terms. Ronald Reagan vetoed minimum wage increases and the real value of the minimum wage fell considerably to the lowest level it's been in recent decades. Yet you didn't see this spurt in employment. You didn't see teenage employment grow over that period. Actually, it fell. So if you just estimate those exact same models that have been estimated and extend the Time series add more data, the effect goes away. Now, that's not supposed to happen. Usually when you add more data, if the model is correct, you actually get a more precise, stronger estimate, not a weaker estimate. So that literature had broken down. And when I started in this area, I thought, okay, so how do we find a more compelling test? I don't really find the time series all that compelling. How do we identify a natural experiment where one area had a minimum wage increase and another one which otherwise would be very similar, didn't? And that's how David Carr and I focused on the New Jersey, Pennsylvania comparison. And I honestly thought we would be the guys in the white hats rescuing the conventional wisdom when we came in, because anybody you know, who would have been taking this stuff seriously would have said the conventional wisdom broke down. And yet what we found was more evidence that the conventional wisdom was wrong. So you would think with that background, the profession would have been a little bit more open minded, that Buchanan would have said, well, maybe I don't have this exactly right. Maybe the world is more complicated than I thought. So that was the background behind our work. And the other thing I'll just throw in because you care and most of the rest of the world doesn't. Another feature of our study was we could look within New Jersey because there were sections of New Jersey where the starting wage was already above the new minimum wage. So that formed a control group for the other sections where the minimum wage was pretty low and the minimum wage increase or the starting wage was low, so the minimum wage increase raised wages a lot. And that looked exactly like what we found when we compared across the border from Pennsylvania to New Jersey. So we thought we had pretty coherent evidence and we pushed it pretty far, I think, which is part of the reason why even though the study is now almost 25 years old, the critics still feel compelled to criticize it.

A (14:43)

Yeah, but. So, professor, will you just lay out for our listeners exactly what you looked at the 94 study and what your conclusions were, because I think we've sort of skipped over that a little.

B (14:52)

Yeah, sure, sure. So what happened in. I'm going to get the dates wrong. So I think it was in 93.

A (15:04)

We will not grade you down for getting the date wrong.

B (15:08)

Actually, I can pull out my book. Hold on one second. You know, I'm a real stickler for accuracy. And it also was a fascinating natural experiment because in early 92, New Jersey almost reversed our experiment. So what had happened was the governor and the state legislature in New Jersey were controlled by Democrats and they decided to raise the federal minimum, the state minimum wage, up to $5.05 an hour. They did that in 91, but then the legislature flipped and the governor was pretty unpopular for other reasons. And it looked like the new legislature was going to repeal the minimum wage increase that had previously been enacted but not taking effect. So basically what happened was, and they fell just short of enough votes to override a veto by the governor. So the minimum wage increase did take effect. And In April of 92, the minimum wage in New Jersey rose from four and a quarter to $5.05 an hour, an 80 cent increase, which, you know, on a of four and a quarter was a pretty large increase. In Pennsylvania they stayed at the federal minimum wage, which was four and a quarter for the next several years. And David Card and I collected data on fast food restaurants that were located in New Jersey or just across the border in Pennsylvania. And we looked at what happened to employment and wages at fast food restaurants in New Jersey versus Pennsylvania. And the data quite clearly pointed to job growth being at least as strong in New Jersey and in some cases even stronger than in Pennsylvania. When we were initially criticized by an industry group which collected data from a handful of fast food restaurants, Card and I went to the Bureau of Labor Statistics and we got permission to get the IRS payroll tax data, which the BLS gets from the irs and we could look at what the companies were reporting. So we had even more accurate data and again showed a very similar picture. The minimum wage increase in New Jersey didn't lead to job loss. If anything, it led to stronger job growth in New Jersey than Pennsylvania.

A (17:52)

As you know, I'm not a trained economist, although I have endeavored to learn as much about the subject as a non professional can. But having grown up in businesses and having now helped run three dozen of them, the conventional wisdom that raising wages kills jobs is one of the most astoundingly illogical and unempirical ideas I've ever come across. Because the fundamental dynamic of market economies is that when people are paid more, they buy more stuff, and then the people they buy it from are forced to hire more workers. And that, you know, if it is true that raising wages kills jobs, then it must also be true that, that lowering wages increases jobs. Except if no one has any money, who will buy the stuff. Like it just makes no sense whatsoever in the real world. And I think that when you look at the empirical evidence, what you find is that high wage places tend to have a lot of business activity and low wage places tend not to unless they're exporting, unless they're essentially being used by other countries as a place to exploit people, which is, which is what a lot of trade is. And so what really fascinates me, what I can't come to understand is how the economics profession derived this conventional wisdom. Like where do you get that, where does that idea come from that if you pay people less somehow there will be jobs? Because what, where does that come from?

B (19:53)

It comes from the idea that the labor market is very competitive. It comes from the idea that there are no resources that are unemployed to begin with, that the market is clearing, that you're in an equilibrium and a particular kind of equilibrium. You're in an equilibrium where companies have no discretion over what they pay.

A (20:15)

So that was the end of the interview and we have lost an incredible human being and a force for good in the world. Super sad. Rest in peace. Alan Krueger.