A colleague stepped into my office yesterday and asked me if I was excited about “one of my kind” being named to head the Council of Economic Advisers. My quizzical look was met with an exasperated response, “he’s a labor economist. Isn’t that what you call yourself?”
In my first day of class yesterday, I explained to my students (in 3 classes they number fewer than 50 in total–fewer than I’ve ever taught in a single class), that I am a labor economist, but that basically means I can do anything I want. It garnered a few laughs, which is nice, but I really meant it. Really, I can do whatever I want.
Alan Krueger, however, cannot do whatever he wants anymore. Though he might have before, now, he has to figure out how to create jobs for the American economy (assuming his nomination gets through Congress). I’ve read a handful of analyses about the Krueger appointment. Approval from the center, criticism from the left, nods of approval from the right, crazy talk from the far right. I thought Matt Yglesias’ commentary was rather salient. He suggested that instead of an economist who concentrates on small problems, we need a macro person, someone to look at the big picture and provide a large-scale solution.
Among labor economists, Krueger is best known for things like his paper with Card on fast-food workers in Pennsylvania and New Jersey (conclusion: raise the minimum wage; it won’t hurt employment like you think). During his limited tenure in government, he’s become known for things like the Cash for Clunkers program. The programs he designed and/or analyzed all have the feature that they’re small. And well, like me, he’s a microeconomist. Cash for Clunkers ran out of money quickly, and its effect was widely believed to have distorted new car sales in time, but not necessarily boosted new car sales. That is to say that people who were going to buy new cars anyway just bought them earlier because of the program. It didn’t actually incentivize that many people to buy cars who weren’t going to anyway. If those earlier sales had saved a car company or two from oblivion, or if the timing of that cash infusion had been instrumental in creating a lot of jobs, we would have cheered it more heartily, but the fact is that it probably did neither of those things. And so while car sales increased during the program, they didn’t manage to save Chrysler.
The big criticism of Krueger (and others who do similar work) is that we can measure these tiny effects in time, but we’re not able to measure the general effects in the economy. The minimum wage paper, in my opinion, is a pretty good paper. You can quibble with the choice of counterfactual and claim there are cultural differences in New Jersey and Pennsylvania, but no counterfactual is perfect. While that paper may do a good job of explaining what happens if we raise the minimum wage in New Jersey, it doesn’t tell us what will happen if we raise the minimum wage in the whole country. Will companies be able to pass on the costs in every state? Are there enough people whose reservation wage lies between the current minimum wage and some theoretical increased wage that we would get more productive or better workers? There remain many questions.
On the plus side, I have to imagine that Alan Krueger knows these things. I, a lowly, recently defended PhD, liberal arts college teacher probably doesn’t have to tell a tenured Princeton professor to think about general equilibrium effects. And while we might need something large scale to reset the economy and get things going, I’ve often though that the CEA could use an infusion of clever and creative labor economics ala Krueger or Angrist.
And at least he hasn’t gone off and told the world that women are bad at math and science.