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 lower the pay of native-born workers. The award was shared by two other people for their innovative research that allowed them 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 is known for his work on the effects of immigration, minimum wage and education on the labor market.
Joshua Angrist, a Massachusetts Institute of Technology researcher, and Guido Imbens, a Stanford University student of Dutch descent, shared the other half. They were both able to use their framework for studying scientific issues that don’t require traditional scientific methods.
According to the Royal Swedish Academy of Sciences, the three have “completely transformed empirical work in economic sciences.”
The three of them 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 examined the effects of raising New Jersey’s minimum wage to $5.05 from $4.25 to $5.05 on jobs at fast-food outlets like Wendy’s, KFC, Wendy’s, and Roy Rogers. 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’s research on minimum wage fundamentally changed economists’ opinions about such policies. According to the Economist magazine in 1992, 79% of American Economic Association members agreed that minimum wage laws 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’s research.
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.
“That surprising evidence about the impact of minimum wage has shaken the field at an extremely fundamental level,” stated Arindrajit Dube, an economics instructor at the University of Massachusetts Amherst who duplicated and expanded Card’s research. 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 awarded posthumously.
Card found that a city’s influx of immigrants doesn’t affect the wages or jobs of native workers. 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 evolution in wages and employment in four cities to find no negative effects on residents of Miami with low education levels. 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 work with the minimum wage is one the most famous 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, then you can compare the incomes between adults who have completed one year more schooling and those without.
There are other factors that could influence whether or not those who have completed an additional year of schooling make more money. They might be more hardworking or more diligent, and they would have earned more even if they didn’t stay in school. These issues are what economists and social scientists believe “correlation doesn’t prove causation.”
However, Angrist and Imbens discovered ways to isolate the effects from things like extra school years. These methods allowed researchers to draw clearer conclusions about cause-and-effect, even though they cannot control who receives extra education. Scientists in a laboratory can control their experiments.
Card claimed that he believed the voicemail from someone from Sweden at 2 AM was a joke from a friend of his school, but then he realized the number 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.
He said that the research had a significant impact on the field because it sought to find “keystone events or other things that could possibly inform our theorizing, understanding and interpretation of the world”.
Krueger was remembered by him and he said that if he were still here, he would share this prize with me.
“I was stunned to receive a phone call then,” Imbens stated. “And then, I was just absolutely delighted to hear the news…that I got to share it with Josh Angrist” and David Card,” Imbens stated.
Angrist stated, “Ofcourse I’m thrilled. It’s an honor and a privilege to receive the Nobel Prize, and to be recognized along with my winners, Guido Imbens, and Dave Card. They are outstanding scholars, and I couldn’t be happier.”
Krueger, who was a collaborator with Card on some research that won the Nobel Prize, died in 2019, at the age of 58. Three decades of his teaching career at Princeton were spent as chief Labor Department economist for President Bill Clinton. He was the chairman of the Council of Economic Advisers and served as the Treasury Department’s chief economist under President Barack Obama.
The award includes a gold medal, 10 million Swedish Kronor (more than $1.14 million) and a certificate of appreciation.
The economics prize was established, unlike the other Nobel prizes. It was not created in Alfred Nobel’s will, but by the Swedish central banking in his memory in 1968. The first winner was chosen a year later. Each year, it is the last prize to be announced.