A Nobel Prize for an economic revolution

Of course, winning the Nobel Prize in economics can be one of the crowns of David Card’s career. And, yeah, he gets to separate over a million dollars with the two other 2021 award winners, Joshua Angrist and Guido Imbens. But that’s just the cake. There is also the icing. David Card teaches at UC Berkeley, so for him, becoming a Nobel Prize winner comes with an added bonus: free parking for life. Seriously.

“Yes, Professor Card, in addition to your Nobel Prize – and, indeed, because of that – I am happy to assign you a much coveted parking space near your office,” said UC Berkeley Chancellor Carol T. Christ the morning of the announcement of the Nobel Prize. “I’ve been told that like many Berkeley faculty members, you ride your bike to and from work, so let me see how we could create a special place for you to park it.”

We look forward to seeing what UC Berkeley comes up with to help new Nobel Laureate David Card park his bike in style. As for the award itself, it adds official pageantry to something nerds already know about Card: his work, often done in conjunction with his late co-author Alan Krueger, has completely reshaped the realm of economics. . Economists regard their work as one of the first bursts of what is sometimes called the “credibility revolution, “or the empirical revolution. This refers to a movement in economics to create innovative research designs, aimed at finding credible evidence to answer important policy questions. After Card and Krueger’s early blows, Joshua Angrist and Guido Imbens parachuted in and gave the revolution yet another victory by deploying even more statistically sophisticated weapons.

Thanks to the work of these new Nobel laureates, economics today has become more of an evidence-based science and less of an ideological philosophy.

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Let’s go back in time to understand why Card and Krueger’s work was such a revolution. It was in the early 90s. A Tribe Called Quest and Nirvana were blaring on the sound systems. People wore neon colors and said words like “cowabunga”. And these two young Ivy League economists were working on a successful study that would not only revolutionize minimum wage thinking, but also revolutionize thinking about how economic studies should be conducted.

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The newspaper was called “Minimum wage and employment: a case study of the fast food industry in New Jersey and PennsylvaniaUntil then, economists thought of the effects of the minimum wage as they did most other subjects, mostly in theoretical terms. Their worldview was more influenced by cartoon models drawn on the board than by hard data. And this comic book world said that minimum wage kills jobs.

Card and Krueger wanted to see how the minimum wage affects real-world jobs. They were inspired by how researchers in the medical field credibly demonstrated cause and effect using randomized experiments. You know, randomly dividing people into two statistically identical groups. Researchers offer a group a treatment, like a pill or something. They then compare the results of the two groups and, boom, they give us credible evidence of the effects of this pill. Card and Krueger dreamed of being able to do this in their research, but the problem for them – and for all sociologists, really – is that it’s a logistical nightmare, if not impossible, to split up large groups of people and run experiments. on many types. pressing political issues.

Lacking the capacity to conduct a randomized trial, Card and Krueger developed an alternative method to credibly estimate cause and effect. When the state of New Jersey raised the minimum wage, they saw the opportunity as a “natural experiment,” approaching the policy change as if it were a randomized trial. New Jersey fast food restaurants were the treatment group. Fast food outlets just across the state border in eastern Pennsylvania were the control group. Card and Krueger then looked at the changes in employment in each state to see what the effect of the minimum wage was in New Jersey. They found that a modest increase in the minimum wage did not kill jobs. It was a bomb for the business world, challenging an orthodoxy that had dominated the field for decades.

Card used natural experiments to study a variety of other important political issues. For example, the cartoon model of the old-fashioned economy said that immigrants reduced the wages of native-born workers. But in a 1990 study, Card analyzed what happened to the Miami job market after 1980, when Fidel Castro allowed thousands of people to leave Cuba and settle in the United States. It was known as the Mariel boat lift, and, if you’ve ever seen the movie Scarface, you know the boat lift. This is how Tony Montana arrives in the United States. Either way, Card found that the large influx of immigrants “had virtually no effect on the wage rates of less skilled non-Cuban workers.” His work spurred more research efforts on the subject and helped a generation of economists and policy makers re-evaluate the costs and benefits of immigration.

Eva Mörk, committee member for the Alfred Nobel Memorial Prize in Economics, told reporters on Monday that Card, Angrist and Imbens “have revolutionized empirical work in economics. They have shown that it is indeed possible to answer important questions. even when it is not possible to conduct randomized experiments. “

Speaking Monday morning in a video call with UC Berkeley Trustees, David Card thanked his former doctoral thesis supervisor and current collaborator, Orley Ashenfelter, for pioneering the “revolutionary change in the way which economists are researching “and have paved the way for its work. Ashenfelter is an economist at Princeton University. As the leader of the influential Princeton Industrial Relations Section, who funds research in economics, Ashenfelter has supervised not only Card but also Joshua Angrist on their doctoral theses. Two former students win the Nobel Prize in one day. Not bad, Orley. We called him to see if we could convince him to supervise our work at silver planet. We settled in for an interview.

“If you look at the articles in economic journals these days, they’re heavily influenced by the kind of work these Nobel Laureates have started,” Ashenfelter said.

Ashenfelter continues to have a working relationship with Card and Angrist, and he was excited about his alumni. And he was also excited about his brand of evidence-based economics. This is the second prize awarded to researchers focused on obtaining experimental evidence to answer big questions. In 2019, Esther Duflo, Abhijit Banerjee and Michael Kremer, pioneers of the use of randomized experiments in development economics, shared a prize for “their experimental approach to reducing global poverty”.

“It’s a good thing because the Nobel committee has been obsessed with economic theory for so long, and now it’s the second prize awarded for how primarily economic analysis is now done,” Ashenfelter said. “Most economic analysis today is applied and empirical.

The sad part of the Nobel Prize is, for some reason, that it is not awarded posthumously. Alan Krueger, who passed away in 2019, surely would have shared the prize if he had lived. But we don’t need an official award to recognize his role in the revolution as well.

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