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1.3 POSITIVE AND NORMATIVE ANALYSIS 19
families housing vouchers that they can use on the open housing market or by implement-
ing rent controls that prevent landlords from charging any renter more than an amount
controlled by law. Or, if government finds it desirable to reduce pollution, should it intro-
duce taxes on emissions or strictly limit the emissions from factories and automobiles?
These examples illustrate that it is important to do positive analysis before nor-
mative analysis. A policy maker may want to ask the normative question, “Should we im-
plement a program of rent controls or a program of housing vouchers?” To understand
the options fully, the policy maker will first need to do positive analysis to understand
what will happen if rent controls are imposed and to learn about the consequences of
housing vouchers. Positive analysis will tell us who is affected by each policy, and how.
Microeconomics can help policy makers understand and compare the impacts of
alternative policies on consumers and producers. It can therefore help sharpen debates
and lead to more enlightened public policy.
APPLICA TION 1.3
Positive and Normative Analyses Card and Krueger found that the increase in New
of the Minimum Wage Jersey’s minimum wage did not decrease employ-
ment. Though provocative—Card and Krueger’s
study presents a finding that is at odds with the
Over 100 countries around the world, including the
implications of the analysis of the minimum wage
United States, set a minimum wage. (In 2009, the U.S. 13
usually presented in microeconomics textbooks —it
minimum wage was $7.25 per hour.) The minimum
is nevertheless an example of a positive analysis. Its
wage has been extensively studied and debated by
purpose was to answer an explanatory question:
economists, and economists differ in their views about
What happened to employment when the minimum
it. For example, a 2006 survey by Robert Whaples of
wage in a state increased?
210 economists belonging to the American Economic
By contrast, consider a piece written in 2004 by
Association found that nearly 47 percent of the econ-
the economist Steven Landsburg that makes a force-
omists surveyed believed that the federal minimum 14
ful case against the minimum wage:
wage in the United States should be eliminated, while
nearly 38 percent believed that the minimum wage In fact, the minimum wage is very good for unskilled
should be increased. 11 workers. It transfers income to them. And therein
Perhaps not surprisingly, one can find examples lies the right argument against the minimum wage.
of both positive analyses and normative analyses of Ordinarily, when we decide to transfer income to
some group or another—whether it be the working
the minimum wage. Consider, for example, David
poor, the unemployed, the victims of a flood, or the
Card and Alan Krueger’s study of the impact on em-
stockholders of American Airlines—we pay for the
ployment resulting from an increase in New Jersey’s transfer out of general tax revenue. That has two
minimum wage in the early 1990s. 12 Contrasting
advantages: It spreads the burden across all taxpay-
changes in employment in fast-food restaurants in ers, and it makes politicians accountable for their
New Jersey with changes in employment in fast-food actions. It’s easy to look up exactly how much the
restaurants in an adjacent state (Pennsylvania) in government gave American, and it’s easy to look up
which there was no increase in the minimum wage, exactly which senators voted for it.
11 Robert Whaples, “Do Economists Agree on Anything? Yes!” Economist’s Voice 3, no. 9 (November 2006),
http://www.bepress.com/ev/vol3/iss9/art1 (accessed September 1, 2009).
12 David Card and Alan Krueger, “Miniumum Wages and Employment: A Case Study of the Fast Food
Industry in New Jersey and Pennsylvania, American Economic Review, 84, no. 4 (September 1994): 772–793.
13 Including this one! See Section 10.6.
14 Steven Landsburg, “The Sin of Wages: The Real Reason to Oppose the Minimum Wage,” Slate ( July
9, 2004), http://slate.msn.com/id/2103486/ (accessed September 1, 2009).