Paul Krugman defended Hillary Clinton from Republican cries of hypocrisy after the economic policy she introduced this week contained some major shifts from positions her husband staked nearly twenty years ago.
The reason for those changes? Democrats are aware of new evidence and are adapting policy to suit it. "It's an interesting experience," Krugman wrote. "Conservatives should try it some time."
The "new evidence" of which he speaks is research by David Card and Alan Krueger that demonstrated that experimenting with the minimum wage rate essentially amounts to a natural experiment on the labor market. Card and Krueger studied the effect of the minimum wage hike in New Jersey on the industry most likely to be changed by it -- fast food -- and found that it actually had a positive effect on unemployment.
How can this be? There are several answers, but the most important is probably that the market for labor isn’t like the market for, say, wheat, because workers are people. And because they’re people, there are important benefits, even to the employer, from paying them more: better morale, lower turnover, increased productivity. These benefits largely offset the direct effect of higher labor costs, so that raising the minimum wage needn’t cost jobs after all.
The direct takeaway from this intellectual revolution is, of course, that we should raise minimum wages. But there are broader implications, too: Once you take what we’ve learned from minimum-wage studies seriously, you realize that they’re not relevant just to the lowest-paid workers.
For employers always face a trade-off between low-wage and higher-wage strategies — between, say, the traditional Walmart model of paying as little as possible and accepting high turnover and low morale, and the Costco model of higher pay and benefits leading to a more stable work force. And there’s every reason to believe that public policy can, in a variety of ways — including making it easier for workers to organize — encourage more firms to choose the good-wage strategy.
So there was a lot more behind Hillary’s speech than I suspect most commentators realized.