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The following article appeared in Left Business Observer #84, July 1998. It retains its copyright and may not be reprinted or redistributed in any form - print, electronic, facsimile, anything - without the permission of LBO.


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Unemployment, pay, and race  by Heather Boushey
   
Click on the MS Word icon for the original version of this paper, which is longer and more technical. Format is Word 95/6.0.  Boushey paper

Over the past few years, non-traditional economic theory has been receiving empirical validation from an unlikely source: mainstream economists. For example, in their recent book about the effects of the minimum wage on employment, David Card and Alan Krueger showed that a rise in the minimum wage did not lead to decreasing employment and in some places employment actually rose. That contradicts the predictions of textbook neoclassical theory, which declares that any increase in wages should be accompanied by a fall in employment.

Similarly, those textbooks also assume that high wages go along with high unemployment; that's the standard explanation of high European jobless rates, for example. But two other esteemed mainstreamers, David Blanchflower and Andrew Oswald, have developed evidence showing that the textbooks have the relation exactly backwards: all other things being equal, unemployment depresses wages. This is no surprise to students of Marxian theory, where the unemployed serve as a "reserve army" of workers to keep the employed pliant, but it is a shocker to the orthodox.

Blanchflower and Oswald call their discover