Applied economists spend a great deal of their time trying to squeeze out meaningful answers—cause-effect—from observational data.
Unlike the natural sciences, we cannot do experiments to answer the big questions in our field. If we want to know, for example, how raising the minimum wage affects unemployment, we must rely on real-world data generated by employers and their workers and customers.
But it’s not as simple as comparing unemployment rates in two jurisdictions with different minimum wage policies. Minimum wage law is a policy choice, and these choices are a function of a range of economic and political forces that also explain the unemployment rate. This means that our ability to learn anything more than this nature about the effect of a minimum wage increase from a simple “apples and oranges” is very limited.
Canadian economist David Card received part of this year’s Nobel Prize in Economics primarily for developing reliable ways to tease out cause-effect from this type of observational data.
Read more: Introducing David Card, the 2021 Nobel Prize winner in economics who made the minimum wage a respectable
While the Guelph, Ont. native has written too many high-impact papers to mention here, economists often associate his name with two historical, highly influential studies we all learn about in graduate school.
The first, which examines the effect of the minimum wage on unemployment, has gained much attention in the wake of the Nobel Declaration. So let’s focus on the second, in which Card combined a clever technique with data generated from a unique historical event to reliably answer how mass immigration from a poor country was native-born. affects the wages of citizens.
Between April and October of 1980, approximately 125,000 people fled Cuba through the port of Mariel, landing as refugees in Miami. What became known as the Mariel Boatlift suddenly and dramatically increased Miami’s local labor force by about seven percent.
It is a prime example of a “natural experiment” that social scientists today are much better able to identify and use because of the card’s trail-blazing early work.
While it would be impossible to study the impact of mass immigration on basic employment and wages in a real laboratory setting, Card felt that the Maryle Boatlift was the next best thing as the city of Miami experienced an unexpected major immigration shock for the same reasons. which were very few. , if anything, to do with wages or employment in the community.
The method he used is a classic example of what has become a standard tool in applied economists’ toolkits, known as “differences in difference”. Comparing the difference in wages in Miami before and after the boatlift with similar differences over time in a group of US control cities, the card can reliably measure the impact due to mass immigration of low-skill workers into local labor. was able to guess. Market.
The card found a “zero” effect—a seven percent increase in the labor force in Miami was not only unaffected by basic wages and unemployment, but also had no particular effect on native-born low-skill workers, who were not affected by the maximum. was defined with a . High School degree. These findings were accompanied by much anti-immigration sentiment in both the US and Canada.
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Card’s discovery challenged conventional wisdom of the time and eventually forced economists to rethink the Economics 101 model of immigration and wage settings in the labor market. In the dominant thinking of the time, mass immigration represented a major increase in the labor supply, which should bring down the price of labor – in other words, lower wages and less work for native-born citizens.
Why would a large influx of workers in a city fail to put downward pressure on native wages and employment? More than 30 years after Card’s paper was published, immigration and labor economists are still calculating with their major findings, and a new set of theories and empirical studies are on the table.
One theory with some supporting evidence is that foreign workers and native workers may be “imperfect substitutes” in production. In other words, foreign workers and native workers may specialize in different tasks, and a large influx of immigrants may cause native-born workers to reallocate their labor to their comparative advantage.
For example, local workers have an advantage in jobs that require strong local language skills, and one reason the Miami economy is able to absorb a large influx of workers so easily is that native-born workers. reallocated their labor to jobs that required strong local language skills. English language communication skills.
But the case on this issue is far from closed, and part of Card’s legacy is its continued effort to rigorously understand the relationship between immigration and the labor market.
Card’s profound impact on economics
There’s a nice parallel here with the card’s other landmark paper on Minimum Wage. This also included the early application of the inter-state gap method to some US states, one that raised their minimum wage and another that did not.
There, too, the card found a zero effect – a modest increase in the minimum wage had no effect on worker unemployment. The finding sent labor economists back to the drawing board, as it effectively contradicted the accepted wisdom at the time that government-imposed wage increases should reduce demand for workers and lead to high unemployment. The result continues to be a careful study of how the minimum wage affects unemployment.
It is noteworthy that, in a field that disproportionately rewards the discovery of large causal effects, the card has been recognized for helping to revolutionize the practice of applied economics by writing two papers that show zero effect. .
It is difficult to exaggerate the effect of cards on economics. He is considered one of the engineers of the so-called “credibility revolution” in economics, which over the past 20 years has made empirical economics the field of choice for the vast majority of graduate students.
Every group of undergraduate or higher-year graduate students is taught about the concept of difference in difference through the lens of Card’s famous work, and it’s hard to imagine that changing any time soon.