The Crippling Flaws in the New Jersey Fast Food Study

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Economists have long believed that raising the minimum wage results in fewer entry-level employment opportunities and displaces the least skilled from the job market. In recent months, proponents of a higher minimum wage have returned to one study which they claim shows the opposite -- that higher minimum wages do not reduce, and may even increase, employment. The New Jersey fast food study, conducted by Princeton economists David Card and Alan Krueger, has been cited by everyone from the Secretary of Labor on national television to key Democrats debating the issue on the floor of the U.S. Senate.

Normally, the fact that politicians refer to an economic study does not make news. But this case is different: the New Jersey fast food study has been proven wrong. It is based on seriously flawed employment data. The data set used in the New Jersey study bears no relation to numbers drawn from the payroll records of the restaurants the New Jersey study claims to cover.

The New Jersey study was wholly discredited more than a year ago when this new information came to light. The media reported on the study using terms such as "snake oil," "dubious numbers," "grossly inaccurate," and "plain wrong." For months, no public figure dared mention the study to support a higher minimum wage. Today, however, leading policymakers are again citing the New Jersey study as fact. These individuals have chosen to ignore reality, intentionally misleading the public and attempting to set public policy on the basis of discredited research.

It is time to set the record straight -- again. The following can be summarized in three simple statements:

The New Jersey fast food study has been re-estimated using payroll records rather than the badly flawed telephone surveys used in the original study. The results, compiled by independent economists, are not surprising: there was significant job loss stemming from New Jersey's decision to increase the state's minimum wage in 1992.
Since the release of the first edition of this report (April 1995), additional problems have been identified in the Card-Krueger data set -- particularly in their attempts to measure price fluctuations as a response to increases in labor costs.
The data base used in the New Jersey fast food study is so bad that no credible conclusions can be drawn from the report.

The truth about the New Jersey fast food study is clear and irrefutable. The data and the conclusions of the study are seriously flawed. It is unconscionable for those who set national minimum wage policy to ignore this evidence and mislead the American people.