Economic Theory, Jae Seung Lee
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Ode to Professor Alan Krueger

By: Jae Seung Lee

A respected, influential labor economist leaves behind a legacy of influential research

On March 16th, Princeton University professor and former chair of the White House Council of Economic Advisers Alan Krueger died at age 58. He is best known for his work on minimum wage in his 1994 paper, “Minimum Wages and Employment: A Case Study of the Fast-food industry in New Jersey and Pennsylvania.” It challenged the belief of classical labor economists that a higher wage floor led to substantial job loss. Professors Card and Krueger applied the method of natural experiments to study employment effects of statutory wages, which was groundbreaking at the time of the research.

All economics students are required to study statistics and econometrics, which are important tools for empirical research. Students learn how to use statistical programs and analyze data to better understand economic systems. However, it was only about four decades ago when econometrics was under strong criticism due to lack of credibility. In 1983, Edward Leamer published an article, “Let’s Take the Con Out of Econometrics,” that criticized prevalent identification problems in research papers of his time. He warned that improperly controlled experiments can generate huge error in the research. David Forbes Hendry also pointed out some “[selection] methods [of the day] are inherently flawed” in a way that one may even conclude inflation in the United Kingdom can be explained better “by rainfall than by stock of money.”

Then in the 1990s, empirical economists raised the standard of what establishes convincing evidence in econometrics. Alan Krueger was one of the notable economists who took part in, or perhaps rather initiated, this “Credibility Revolution.” During this transition, researchers put more effort to design and use more credible empirical methods, and Krueger’s co-authored paper published in 1994 is a great example of this movement. Krueger was a pioneer in the use of natural experiments. He measured the effect of a minimum wage increase on employment through a strictly controlled experiment. New Jersey and Pennsylvania, adjacent states used in this paper, have resembling economic conditions, and change in New Jersey’s minimum wage allowed the two states to qualify as adequate control and treatment groups. The paper, which is one of the most famous studies to use a difference in difference estimation , re-kindled the debate on minimum wage. Challenging the orthodox supply and demand labor theory gave birth to many theories and models to explain minimum wage, such as the monopsony model.

Apart from his celebrated contribution to labor economics, Krueger is also known for his research in a wide range of topics. He tackled issues related to terrorism, public welfare, education and wage inequality in the context of economics. “Attitudes and Action: Public Opinion and the Occurrence of International Terrorism,” Economic Growth and the Environment and Does Compulsory School Attendance Affect Schooling and Earnings? are just some of his famous works dealing with these topics. His posthumous book, Rockonomics, will show his avid interest in music and his ability to make economic principles more digestible for the general public.

What made Professor Krueger even more distinguished is that he did not stop at solely conducting research, but he looked to apply his findings to better people’s lives. He served as a chief economist at the Department of Labor under President Bill Clinton and chair of the Council of Economic Advisers under President Barack Obama. During his time as an economic advisor, he consulted on public policies dealing with minimum wage legislations and the post-financial-crisis recovery. His “Great Gatsby Curve,” a term introduced in his speech, shows children from low-income families are more likely to stay poor in countries with higher wealth inequality, which resembles the Roaring Twenties’ income disparity. During his time in government, Krueger put his best effort to reduce this gap, thereby increasing intergenerational social mobility in the United States.

As an undergraduate economics student with passion in labor economics, I have read many of professor Krueger’s work for my research. Despite my elementary knowledge of economics, his empirical approach was a great motivation for me to explore this field further. It was with great sadness that I learned that the professor had passed away a earlier this year. My thoughts and prayers are with his family and colleagues. His life was short, but his legacy will be very long.

Work Cited:

Image Source: Bloomberg

  1. Card, D., & Krueger, A. (1993). Minimum Wages and Employment: A Case Study of the Fast Food Industry in New Jersey and Pennsylvania. doi:10.3386/w4509
  2. Hendry, D. F. (2000). Econometrics alchemy or science?: Essays in econometric methodology. Oxford (Inglaterra) ; Nueva York (Estados Unidos): Oxford University Press.
  3. Leamer, E. E. (1983). Let’s Take the Con Out of Econometrics. The American Economic Review, 73, 31-43.

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