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.
the other half was shared Joshua Angrist Dutch-born Guido Imbens from the Massachusetts Institute of Technology and Stanford University to study 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, provided policymakers with anecdotal evidence on the consequences of policies, and over time gave rise to a more popular approach to economics described by the blockbuster bestseller “Freakonomics”. Stephen Dubner And Steven Levitt.
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, using restaurants bordering eastern Pennsylvania as a control – or comparison – group. In contrast to previous studies, he and his late research partner Alan Krueger They found that the increase in the 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 the minimum wage law 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 at a very fundamental level,” said Arindrajit Dubey, a professor of economics at the University of Massachusetts, 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 result in native workers losing jobs or reducing 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, forcing 125,000 people to move from what became known as the Mariel Boatlift. 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 the income of 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. Such issues have led economists and other social science researchers to state 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 if they were unable to control who receives additional education, much the way scientists in a laboratory might control their experiments. .
Card said he thought the voice message he received at 2 a.m. from someone from Sweden was a prank by a school friend, until he noticed that the number on his phone was actually from Sweden.
He said that he and his co-authors krieger He faced mistrust from other economists about his findings. “At the time, the findings were somewhat controversial. Some economists were skeptical of our results,” he said.
As for the importance of the research, “the thing that really influenced the field is the idea of looking for these important events or things that could potentially inform our theory and understanding of the world,” he said. .
He paid tribute to Krueger, saying that “I am sure if Allen was still with us he would have shared this award with me”.
“I was absolutely stunned to receive a telephone call,” Imbens said. “And then I was absolutely thrilled to hear the news … that I got to share this Josh Angrist and David Card,” whom he called “both very good friends.” Imbens said Angrist was the best man at their wedding.
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 am proud of it.” 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 President Bill Clinton. He served in the Treasury Department under President Barack Obama, then as chairman of Obama’s Council of Economic Advisors.
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 established in 1968 in his memory by the Swedish central bank, with the first winner being chosen a year later. This is the last award announced each year.
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