Authors: Christopher Rugarber (author), David McHugh (author), and David Keton
Stockholm (Associated Press). On Monday, an American economist won Nobel Prize in Economics. His groundbreaking research showed that raising minimum wage does not cause a decrease in recruitment and that immigrants do not affect the wages of local-born workers. This is a challenge to the common view. These two share the award for creating a method for studying these social issues.
David Card, who was a native of Canada and was educated at the University of California at Berkeley, won half of these awards for his research on the effects of education, immigration, and minimum wage on the labor market.
Joshua Angrist, MIT, and Guido Imbens, a Stanford University native from the Netherlands. The latter proposed a framework that could be used to investigate problems that are not easily solved by traditional scientific methods.
The Royal Swedish Academy of Sciences declared that the three researches were revolutionary in terms of empirical research in economic sciences.
Card conducted a 1994 study to examine what happened to the jobs in Wendy’s and KFC when New Jersey raised minimum wages from $4.25 per hour to $5.05. As a comparison or control group, the restaurants located to the east are used. According to his previous research, he and Allen Krueger (who died in 2019) found that raising minimum wage did not have an effect on the number employees.
Card’s research on minimum wage has profoundly changed economists’ views about such policies. According to the Economist magazine, 79% of respondents to a 1992 survey by the American Economic Association concluded that minimum wage laws increased the unemployment rate for young and low-skilled workers. These views are based on the economic traditional view of supply-demand: If you increase the cost of something, you’ll get less.
In 2000, however, only 46% of AEA member states that the minimum wage law has increased the unemployment rate. This is largely due in part to Card and Krueger’s research. These findings sparked interest in further research into why higher minimum standards wouldn’t reduce employment. One conclusion was that the company could pass the cost of increasing wages on to its customers by raising the prices. If a company is a major employer within a field, it may be possible to maintain wages at a low level in order to pay a higher wage. Additionally, higher wages will attract more applicants, which can boost labor supply.
Card found that new immigrants can increase the income of local workers, while those who arrive later may suffer. Card studied the effects of immigration on the work market. He compared Miami’s labor market to 1980 when Cuba allowed people to immigrate. This resulted in 125,000 people fleeing, later known as Mariel Boatlift. This resulted in a 7% increase in the city’s labor force. Card examined the impact of wage and employment changes on Miami residents with low educational levels. The results of follow-up research show that immigration can have positive effects on income for people born in the country.
Half of the awards were given to Imbens and Angrist for their solutions to methodological problems. These allow economists to draw reliable causality conclusions even when they cannot conduct rigorous scientific research.
Card’s work on minimum wages is an example of a “natural experiment” or a study based on observations of real-world data. This type of experiment can sometimes be difficult to distinguish cause from effect. If you want to determine if an extra year’s education will increase an individual’s income, then you can compare the income earned by an adult who has had an additional year of education to the income earned by an adult who did not have any education.
There are other factors that could influence whether someone who has completed an extra year of schooling can make more. Perhaps they are more dedicated or work harder, which could make them more successful than those who don’t have an extra year. Economists and social scientists have concluded that correlation can’t prove causality.
To solve these problems, Imbens & Angrist created statistical methods that allow for more accurate determination of the real situation with regard to the effects of natural experiment.