By Harvey Nriapia, Chief Economics Correspondent
Earlier this month as part of their Nobel Laureate Series, The Economist’s Society hosted labour economist and Nobel Prize winner David Card to present a lecture entitled “Economic Research and Policy: Immigration and the Minimum Wage”.
Professor David Card is a legend in economic literature. To such an extent that even in the thick of exam season, the Chistopher Ingold Building brims with students all eager to lap up his wisdom. And with good reason – his work is a staple of any good undergraduate economics course, and these days we take much of his work on immigration and the minimum wage for granted. But things haven’t always been this way. The room is abuzz when Professor Christian Dustmann introduces him as a rebel. Professor Card “[challenges] existing dogmas” and “often argues against the prevailing mainstream view in economics,” he says. And Card agrees. “The initial policy reaction to the work I did with Kreuger was pretty negative,” Card laughs. This is most certainly an understatement.
Card jokes about the initial public reaction to his research
Card begins by tackling the Malthusian view of immigration, the sort befitting of a tabloid headline. Economists during the Industrial Revolution realised that when capital can keep up with the pace of population growth, economies can escape the Malthusian trap. This has been the traditional view amongst economists for some time now, even though the headlines don’t seem to be changing.
Card rebuts the Malthusian view of immigration
However, little research had been done on the impact immigration had on the wages of natives who compete directly in the labour market with immigrants for jobs.
His paper The Impact of the Mariel Boatlift on the Miami Labor Market attempts to answer this question. The Mariel Boatlift was a mass emigration of Cubans to Miami over a six-month period in 1980 – or to economists, a natural experiment. Card presented the work of one of his PhD students who had created a ‘synthetic Miami’ – a composite of many economies that closely resemble Miami’s in labour market composition and sector mix – which suggests that the effect on wages of directly competing natives is minimal, if present at all.
Comparing Synthetic Miami and actual Miami suggests immigration does not change wages very much at all
Then he shifts to the topic of minimum wage. To investigate how minimum wage affects employment in his paper Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania he used a simple difference-in-difference approach in both New Jersey and Pennsylvania.
“We found very little evidence of an employment effect,” he says, which was an irritating result for mainstream economists at the time. Nobel Laureate James Buchanan said that “no self-respecting economist” would make such a claim; Card revealed his PhD students used to get yelled at when they would apply for jobs; and policymakers took no notice of his research.
The lecture hall is full of students wanting to hear Card talk
Today, minimum wage policy has become more widespread. For example, Card cites the New Jersey constitution which now codifies a minimum wage where there hadn’t been one before. However, he is cautious to suggest that his research was the catalyst for the minimum wage policy we see today.
“Policymakers – whoever they are – they’ll grab whatever evidence they can to support whatever position they want to propose,” – his characteristic humility shining through.
On the immigration front, his work still seems to be largely ignored by policymakers. “The evidence, if anything, has become more favourable to immigration but,” Card admits, “all of the policy changes in the last twenty years have been negative.” He cited Trump’s attitude to immigration; the H1-B visa caps that have tech companies “complaining like crazy”; as well as US refugee policy, which is now among the strictest in the world.
He continues with a recommendation for further research which almost operates like a clarion call. “Our models aren’t particularly well-suited to understanding the other thing that people don’t like about immigration,” he confesses. “In the future I’m hopeful that economists will begin to broaden our perspective on that.” This is food-for-thought for a lecture hall full of budding researchers.
So, although David Card is a winner – achieving the John Bates Clark medal in 1995 , the Frisch Medal in 2008, and finally, the Nobel Prize for his “empirical contributions to labour economics” in 2021 –economists in many ways are still losing the argument. Hopefully, the next generation of economists feel motivated to build on the research he has done, because there is still much more to understand about these policy issues, and his work is only the beginning.
Card poses with members of The Economist’s Society 2021-22
References:
Card, D. (1990). The Impact of the Mariel Boatlift on the Miami Labor Market. ILR Review, 43(2), 245–257.
Card, D., & Krueger, A. B. (1994). Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania. The American Economic Review, 84(4), 772–793.
Pischke, J (2021), Natural experiments in labour economics and beyond: The 2021 Nobel laureates David Card, Joshua Angrist, and Guido Imbens, VoxEU.
The Nobel Committee (2021), Natural experiments help answer important questions, the Prize in Economic Sciences.