There has been a recent kerfluffle over the Sabia and Burkhauser paper (ungated here) suggesting that minimum wage increases do not very much help the American poor. Sabia and Burkhauser report facts such as this:But then he proceeds to an equally interesting philosophical discussion regarding the extent to which we can know something, and in particular about the relative contributions between theoretical arguments (based on simplified assumptions and statistical modeling) and empirical arguments.
Only 11.3% of workers who will gain from an increase in the federal minimum wage to $9.50 per hour live in poor households…Of those who will gain, 63.2% are second or third earners living in households with incomes three times the poverty line, well above 50,233, the income of the median household in 2007.That’s what I call not very well targeted toward helping the poor. To the best of my knowledge, these numbers have not been refuted or even questioned.
Ideally you want theory and empirical observation to reconcile with one another, but at the frontiers of knowledge, they most commonly do not. In that event, the best approach is to simply wait for additional data. But that is hard to do in the face of a slow unfolding of changes with negative tactical impacts (such as globalization) even if they are strategically magnificent. The thirty or so years of true globalization have seen recurring wrenching changes in the American economy with lots of short term disruptions expressed in both lost income and psychological stress. At the same time, in those thirty years, the world has seen an immense reduction in global poverty directly as a consequence of globalization.
There is an immensely strong urge to "not just stand there, do something" and an equally powerful attraction to simple ideas such as "raise the minimum wage." But as the empirical data show and the epistemological discussion elaborates, unless you know what you are doing, and you usually don't because that is the nature of the knowledge frontier, then you are more likely than not to make things worse.