Canadian-born David Card of the University of California, Berkeley, was awarded half the prize for his research into how the minimum wage, immigration and education affect the labor market.
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The other half was shared by Joshua Angrist of the Massachusetts Institute of Technology and Dutch-born Guido Imbens of Stanford University for the study of issues that cannot rely on traditional scientific methods. The Royal Swedish Academy of Sciences stated that all three “completely replaced empirical work in economic science.”
Together, the three helped to rapidly expand the use of “natural experiments” or studies based on observation of real-world data. Such research made economics more applied to everyday life, providing policymakers with anecdotal evidence on the consequences of policies, and over time a more popular approach to economics described by Stephen Dubner and Steven Levitt, the blockbuster bestseller “Freakonomics”. gave birth to the approach.
In a study published in 1993, Card looked at what happened to jobs at fast-food restaurants Burger King, KFC, Wendy’s and Roy Rogers when New Jersey raised its minimum wage from $4.25 to $5.05, as did the controls. Restaurants in the eastern Pennsylvania border used – or compared – groups. Contrary to previous studies, he and his research partner Alan Krueger, who died in 2019, found that the increase in minimum wage had no effect on the workforce.
Card’s minimum wage research radically changed the views of economists about such policies. As noted by The Economist magazine, a 1992 survey of members of the American Economic Association found that 79% agreed that minimum wage legislation increased unemployment among young and low-skilled workers. Those ideas were largely based on traditional economic notions of supply and demand: if you raise the price of something, you get less of it.
By 2000, however, only 46% of AEA members said that minimum wage laws lead to an increase in unemployment, largely due to research by Card and Kruger.
Their findings sparked interest in further research into why a higher minimum would not reduce employment. One conclusion was that companies are able to pass on the cost of higher wages to customers by raising prices. In other cases, if a company is a major employer in a particular sector, it may be able to keep a particularly low wage so that it can pay a higher minimum if necessary to do so, without cutting jobs. . Higher salaries will also attract more applicants, boosting the labor supply.
“The really surprising evidence on the effect of minimum wages has shaken the field to a very fundamental level,” said Arindrajit Dubey, a professor of economics at the University of Massachusetts at Amherst, who has replicated and elaborated on Card and Kruger’s research. “And so for that reason, and all of the following research that ignited his work, this is a richly deserved award.”
Dube said that Krueger would almost certainly have taken part in the prize, but the Nobel in economics is not awarded posthumously.
The card also found that an influx of immigrants into a city does not reduce native workers’ jobs or their earnings, although earlier immigrants may be negatively affected.
Card studied the labor market in Miami, when Cuba made an abrupt decision to allow people to emigrate in 1980, which led to what came to be known as the Mariel Boatlift to 125,000 people. This resulted in a 7% increase in the city’s workforce. By comparing wage and employment growth in four other cities, the card found no negative effects for Miami residents with lower levels of education. Follow-up work has shown that increased immigration can have a positive effect on income for people born in the country.
Angrist and Imbens won half their prize for work on methodological issues, which allow economists to draw firm conclusions about cause and effect, even if they cannot study according to strict scientific methods.
Card work at the minimum wage is one of the most famous natural experiments in economics. The problem with such experiments is that it can sometimes be difficult to separate cause and effect. For example, if you want to find out whether an additional year of education will increase a person’s income, you can simply compare the incomes of adults who have another year of schooling.
Yet there are many other factors that can determine whether people who have received an extra year of schooling are able to earn more money. Perhaps they are more diligent or more diligent and would have made more money than those without an extra year, even if they had not been to school. These kinds of issues lead economists and other social science researchers to say that “correlation does not prove causation.”
However, Imbens and Angrist found ways to isolate the effects of things like an extra year of school. Their methods enabled researchers to draw more clear conclusions about cause and effect, even when they were unable to control who receives additional education, much the way scientists in a laboratory might control their experiments. .
“I was absolutely stunned to receive a telephone call,” Imbens said from his home in Massachusetts. “And then I was absolutely thrilled to hear the news … that I got to share it with Josh Angrist and David Card,” who he called “both very good friends of mine.” Imbens said that Angrist was the best man at their marriage.
Angrist said, “Of course I’m thrilled. … it’s an honor to receive the Nobel Prize and especially to be recognized with my winners, you know, Guido Imbens and Dave Card, who are wonderful scholars and I couldn’t be happier.”
Krueger, who worked with Card on some of the Nobel-winning research, died in 2019 at the age of 58. He taught at Princeton for three decades and was chief Labor Department economist under then-President Bill Clinton. He served in the Treasury Department under then-President Barack Obama, then as chairman of Obama’s Council of Economic Advisors. Nobel Prizes are not awarded posthumously.
The award comes with a gold medal and 10 million Swedish kronor (over $1.14 million).
Unlike other Nobel Prizes, the Economics Prize was not established in the will of Alfred Nobel, but was instituted in his memory by the Swedish central bank in 1968, with the first winner being selected a year later. This is the last award announced each year.