A minimum wage field experiment
Thanks to Dan for inviting me to guest blog!
Tyler Cowen suggests that the expected increase in the minimum wage may serve as a useful “controlled experiment,” at least if the increase applies to Northern Mariana but not to American Samoa. A commenter points out that it’s not a well controlled experiment, because the two territories are not identical. This point rehearses a familiar challenge for empirical legal analysis: Legal scholars don’t have the luxury of randomized studies. Even natural experiments rarely provide conclusive evidence of policy effects.
But we could have randomized studies (or so I will argue in a paper that I am working on). John List is a leader among those who do “field tests” rather than using laboratory experiments or relying on other econometric techniques. (I refer of course to John List the economist, not John List the family murderer, although the boundary between these occupations has allegedly blurred recently.) We could do field tests in law, if only legislatures would cooperate.
An explanation, after the jump.
For example, instead of a hypothetical $1 uniform increase, Congress could provide that the minimum wage will be increased by $0.75 in half the nation’s counties and $1.25 in the other half. The counties would then be selected at random. The resulting data should be considerably more meaningful than anything we can otherwise obtain.
If legislators really disagree about the effects of a minimum wage increase, there should be some incentive to structure the increase in this way. Suppose that Democrats generally believe that there will be at worst small disemployment effects from the higher increase, while Republicans generally believe that there will be higher effects. Assume as a simplification that Democrats generally want larger minimum wage increases than Republicans. Then, Congress could provide that after some experimental period, the national minimum wage will depend on the result of the experiment. The minimum wage would then be $0.75 everywhere or $1.25 everywhere depending on the result of the experiment (or there could be another experimental round). Each side should prefer this to the uniform legislation, because each side should expect to win the bet.
Yet, we almost never see legislative arrangements like this. (If you know of any randomized legislative experiments outside the education area, I’d be very interested in the information.) I think there are a number of reasons for this, both positive and normative. A critical obstacle is cultural. Legislatures don’t want to be seen as playing dice with people’s lives. I believe that it would generally be useful, though, if we could establish randomized experiments as a common, even expected, policy tool. Not every policy intervention lends itself to a perfect experiment; a significant problem with the minimum wage experiment is that workers can walk across county lines. But information is valuable, and we would have much better information with even imperfect legal field tests.