by Phillip W. Magness
The American Institute for Economic Research
The selection of economist David Card as co-recipient of the 2021 Nobel memorial prize for Economics has, curiously, revived an old story about a war of words from another laureate. According to this account, James M. Buchanan – the winner of the 1986 prize – allegedly denounced Card for finding empirical results that contradicted basic economic theory about the minimum wage.
We’ll get to that story in a moment, but first let’s look at the background.
David Card’s many scholarly distinctions include a 1994 study of minimum wage policies in the fast food industry. In that study Card and his co-author Alan Krueger used the different minimum wage rates in the neighboring states of New Jersey and Pennsylvania to run what was essentially a natural experiment. They surveyed fast food establishments near the borders of the two states to see if the higher minimum wage rate in New Jersey caused an increase in unemployment among fast food workers (conventional economic theory about price floors says that it should, all else equal). Contrary to this expectation, Card and Krueger “found no indication that the rise in the minimum wage reduced employment” in the New Jersey fast food industry. And so began a legend of a feud.