By Justin Lahart
For decades, Econ 101 held that raising the minimum wages killed jobs. Then, in 1994, economists David Card and Alan Krueger published a paper saying the opposite.
Economists have been fighting over the minimum wage ever since. Today the debate has never felt more relevant.
Nineteen states raised their minimum wages in January, giving an estimated 8.3 million workers a raise. Three more follow later this year.
More workers now live in states that pay $15 or more per hour than those at the $7.25 federal minimum, according to the Economic Policy Institute. Tukwila, Wash., has the highest overall minimum wage in the country at $21.65. In Los Angeles, the hourly floor for hotel workers at properties with more than 60 rooms is $22.50, a figure set to rise to $30 in July 2028. Now New York City is considering lifting the minimum at large businesses to $30 by 2030.
How it all affects the job market remains deeply unsettled. At the heart of the debate: Does raising the wage floor reduce employment by making labor more expensive?
Two Economists and a Fight That Ignites in New Jersey
Card and Krueger's paper got its start in 1992, when New Jersey decided to raise its minimum wage to $5.05 from $4.25, while neighboring Pennsylvania aimed to leave it at the $4.25 federal minimum. For the two Princeton professors, this was an opportunity for a natural experiment.
The fast-food industry was a leading employer of minimum-wage workers, so if they could survey restaurants on either side of the border before and after New Jersey's wage increase, they could gauge the effect. The pair hired an undergraduate to comb through phone book listings for fast-food restaurants. They also hired the student's grandmother, a survey professional from Utah with an uncanny ability to get answers from fast-food managers over the phone. In all, they sampled 410 fast-food restaurants across both states.
What they found upended decades of economic orthodoxy: After New Jersey's minimum wage rose, fast-food employment actually increased relative to levels seen in Pennsylvania. The paper published in 1994 stated plainly: "We find no indication that the rise in the minimum wage reduced employment."
For the Clinton administration, the paper was just what it needed to help give intellectual ballast for its case to raise the federal minimum wage. It seized on the research.
The Old Guard Snaps Back
The blowback was intense. The restaurant lobby hated the paper. So did a lot of prominent economists.
In a letter to The Wall Street Journal in 1996, Nobel Laureate Milton Friedman said that raising the minimum wage would reduce demand for workers, just like raising prices on "gasoline or wheat or milk" would cut into demand for those items. Another Nobel laureate, James Buchanan, was less measured: "Fortunately, only a handful of economists are willing to throw over the teaching of two centuries; we have not yet become a bevy of camp-following whores," he wrote in a different letter to the Journal.
In one, economists David Neumark and William Wascher used a survey conducted by a think tank with ties to the restaurant industry, supplemented with their own data, and found employment in New Jersey had actually fallen relative to Pennsylvania. So, Card and Kreuger hit back with a second study using more comprehensive data--detailed unemployment insurance payroll tax records collected by the Labor Department.
This kind of back and forth has gone on for years, with more economists joining in with studies and counterstudies that employed different data sets and methodologies. And while fewer economists are stridently opposed to minimum wages than in the 1990s, the field remains divided on the question of whether they hurt employment.
Nonetheless, in 2021, David Card was one of the winners of the economics Nobel for his work on natural experiments, including the minimum wage paper. He thinks that Krueger, who died by suicide in 2019, would have won it with him had he lived.
A New, Old Theory
On the surface, much of the debate is an argument over statistics and methods. At its root, it is a fight over whether labor markets are like markets for "gasoline or wheat or milk," as Friedman said.
In economics there is a theory called "monopsony." Monopoly's opposite, it describes markets where buyers hold bargaining power. In the labor market, those buyers are employers, and the idea that they can hold more power goes all the way back to Adam Smith, who in 1776 argued that employers could more easily work together to keep wages low than workers could organize to raise them. Smoke-filled rooms of colluding owners aren't required, though. Any market where switching jobs is costly and workers' options are limited can give employers more power in setting wages.
To understand how this works, imagine a company that pays low wages, said University of Massachusetts economist Arindrajit Dube. It saves money, but also has higher vacancies and turnover -- because who wants a job that doesn't pay well? When a minimum wage hike forces the company to raise its pay, the job becomes more attractive and it can fill vacancies and retain workers more easily, which can actually increase employment. A once-obscure idea, now it gets taught to college freshmen.
Wellesley College economist Sari Pekkala Kerr notes that while there has been a lot of action in some mostly higher-income states and cities, the federal minimum wage, which was last raised 16 years ago, still acts as the floor in 20 states.
"A lot of places haven't seen increases in such a long time that who knows what would happen," said Kerr, who also notes that the growing role of giant companies like Walmart and Amazon.com in low-wage industries might be increasing employer power.
Dube was one of the authors on a major 2019 paper that showed that higher minimum wages didn't dent employment, and believes that monopsony helps explain why. But that doesn't mean he thinks minimum wage increases come free. Companies must absorb bigger labor costs or pass them on to customers. And, at some point, a minimum wage hike can hurt jobs. The hard part is figuring out how far is too far.
"Are we hitting the right point?" said Dube. "The Goldilocks zone, if you will."
Write to Justin Lahart at Justin.Lahart@wsj.com
(END) Dow Jones Newswires
March 19, 2026 12:03 ET (16:03 GMT)
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