The Nobel Prize in Economics Monday was won by a U.S.-based economist for his pioneering research on labor force. It showed that an increase in the minimum wages doesn’t prevent hiring, and that immigrants don’t reduce the pay of native-born workers. The award was shared by two other people who developed new ways to study these kinds of social issues.
Half of the prize was awarded to David Card, a Canadian-born researcher at the University of California, Berkeley. He researched how the minimum wages, migration and education impact the labor market.
Joshua Angrist of Massachusetts Institute of Technology, and Guido Imbens of Stanford University were each part of the other half. They shared their framework to study issues that don’t fit into traditional scientific methods.
According to the Royal Swedish Academy of Sciences, the three have “completely reshaped empirical research in the economic sciences.”
They helped to rapidly increase the number of “natural experiments,” which are studies that are based on real-world data. This research helped economics become more relevant to daily life and provided policymakers with real evidence about the outcomes of policies. In time, it spawned the popular bestseller “Freakonomics” by Steven Levitt and Stephen Dubner.
Card published a 1993 study that looked at the effects of New Jersey’s minimum wage increase on jobs at Wendy’s, KFC and Wendy’s. He used restaurants in eastern Pennsylvania as the comparison group. He and his late research partner Alan Krueger discovered that an increase in minimum wage did not affect the number of employees, contrary to previous studies.
Card and Krueger’s research had a profound impact on economists’ opinions about such policies. According to the Economist magazine in 1992, 79% of American Economic Association members agreed that a minimum wage law would increase unemployment among lower-skilled workers. These views were largely based upon traditional economic concepts of supply and demande: You get less of something if you increase the price.
However, only 46% of AEA members believed that minimum wage laws increased unemployment by 2000. This was largely due to Card and Krueger.
These findings inspired further research to determine why a higher minimum wage wouldn’t decrease employment. One conclusion was that companies can pass the higher cost of higher wages on to their customers by increasing prices. Other times, if a company has a significant presence in a specific area, it might be able keep wages low so it can afford to pay a higher minimum wage when necessary without cutting jobs. Higher wages would attract more people, which will increase the labor supply.
Arindrajit Dube (an economics professor at University of Massachusetts, Amherst) said that their paper “has shaken the field at an extremely fundamental level.” This award is well-deserved, given the amount of research they did and all that followed.
Dube stated that Krueger would have almost certainly shared the award. However, the economics Nobel has not been given posthumously. Imbens stated that Krueger co-authored papers alongside all three winners.
Krueger, who was 58 years old, died in 2019. He taught at Princeton for 30 decades and was the chief Labor Department economist under President Bill Clinton. Krueger was also the chairman of Obama’s Council of Economic Advisers.
Card’s research also showed that an influx in immigrants to a city does not affect native workers’ earnings or cost them jobs. However, earlier immigrants may be affected.
Card examined the Miami labor market after Cuba’s 1980 decision to allow people to emigrate. This led to 125,000 people leaving in what was known as the Mariel Boatlift. The city saw a 7% rise in its workforce. Card compared the changes in wages and employment in four cities to discover no negative impacts for residents of Miami with low education. The results of follow-up research showed that increasing immigration can have positive effects on income for those born in the country.
Angrist, Imbens received their half of this award for identifying the methodological issues that enable economists to draw strong conclusions about cause-and-effect even when they are unable to carry out rigorous scientific studies.
Card’s research on the minimum wage is among the most well-known natural economic experiments. It can be hard to determine cause and effect in such experiments. If you want to determine if an additional year of education will increase someone’s income, it is not possible to simply compare the incomes between adults who have completed one year more schooling and those who did not.
This is because there are many factors that could determine whether people who have completed an additional year of schooling can make more money. They might be more hardworking or more diligent, and they would have done better than people who did not get an extra year of schooling. These issues are what economists and social scientists believe “correlation doesn’t prove causation.”
However, Angrist and Imbens were able to identify the effects of extra school years. These methods allowed researchers to draw more clear conclusions about cause-and-effect, even though they cannot control who receives extra education. Scientists in a laboratory can control their experiments.
In one newspaper, Imbens used a survey to assess the effect of basic income provided by the government. This has been suggested by left-leaning politicians in Europe and the U.S. A $15,000 per year prize did not affect a person’s ability to work, he found.
Card claimed that he believed the voicemail from Sweden at 2 AM was a joke until he realized the number on his mobile phone was actually from Sweden.
He stated that he and Kreuger were disbelieved by other economists over their findings. The conclusions were controversial at the time. He said that quite a few economists were skeptical about our results.
Susan Athey, Imbens’ spouse, is also an economist, and the president-elect for the AEA. Imbens stated that they often argue about economics before their three children.