By Kathy G.

I’ve been remiss in replying to this post by Megan McArdle, but today I’ve finally gotten around to it. This will be a really long post, so don’t say I didn’t warn ya.

McArdle basically argues two things: that 1) the minimum wage has a disemployment effect, and 2) that monopsony is not a persuasive model for the labor market (or at least for the low-wage retail sector). First I’ll deal with the evidence on the minimum wage. McArdle mentions the famous 1994 Alan Krueger and David Card study which looked at the impact of a 1992 increase in the minimum wage on employment in fast food establishments in New Jersey. Krueger and Card found that in that case, contrary to what standard theory predicts, the increase in the minimum wage did not decrease employment.

Very reasonable criticisms of that study have been made. McArdle summarizes:

The original study was a phone study; when another study asked for actual payroll records, they found the same result the standard model would predict: fast food employment dropped in New Jersey. Additionally, as Kevin Murphy has pointed out, the survey started long after employers knew that a minimum wage hike was coming–he compares it to assessing a midnight curfew by comparing the number of teenagers on the street at 11:59 to the number on the street at 12:30.

In response, Krueger and Card did another study that looked at the impact of that same minimum wage increase on employment in fast food establishments in New Jersey. To counter the previous criticisms from economists like Kevin Murphy who said that their data was problematic and that they’d got the timing wrong, this time they used a more reliable data source (employer data from the Bureau of Labor Statistics) and looked at the data over a longer time period. And guess what? This new analysis confirmed their original findings: the increase in the minimum wage did not lead to a decrease in employment.

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After the dollar

by John Quiggin on May 11, 2008

It’s unclear whether we are bound for a Post-American World in the near future, but it seems pretty clear that we are bound for a world in which the US dollar is no longer the unique ‘reserve currency’. The combination of chronically large trade and budget deficits and willingness of the US monetary authorities to tolerate sustained inflation means that decisions by national central banks to hold US dollar reserves are now driven by a desire to preserve the existing order rather than by calculations of risk and return. In the long run this can’t be sustained.

If the US dollar can no longer satisfy the requirements of a reserve currency, what are the alternatives? I can see two possibilities.

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