Friday, June 12, 2015

The Myopic Empiricism of the Minimum Wage, Bryan Caplan | EconLog | Library of Economics and Liberty

Unlike most opponents of the minimum wage, I admit that David Card and Alan Krueger's famous research on the topic is well-done.  How then can I continue to embrace (and teach!) the textbook view that the minimum wage significantly reduces employment of low-skilled workers?
Part of the reason is admittedly my strong prior.  In the absence of any specific empirical evidence, I am 99%+ sure that a randomly selected demand curve will have a negative slope.  I hew to this prior even in cases - like demand for illegal drugs or illegal immigration - where a downward-sloping demand curve is ideologically inconvenient for me.  What makes me so sure?  Every purchase I've ever made or considered - and every conversation I've had with other people about every purchase they've ever made or considered.
Another reason why Card-Krueger hasn't flipped my position: Despite my admiration for their craftsmanship, even the best empirical social science isn't that good.  I expect true theories to predict the data only two-thirds of the time - and false theories to predict the data one-third of the time.  (N.B. Many of the weaknesses in empirical social science are systematic, so the Law of Large Numbers is no salvation). Bayesian upshot: The Card-Krueger findings only slightly reduce my initial high confidence that the minimum wage causes unemployment.

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