Business Standard

Nobel economics prize goes to natural experiment­s pioneers

The trio reshaped empirical work in the economic sciences, said the Royal Swedish Academy


A Us-based economist won the Nobel prize for economics on Monday for pioneering research that showed an increase in minimum wage does not lead to less hiring and immigrants do not lower pay for nativeborn workers, challengin­g commonly held ideas. Two others shared the award for creating a way to study these types of societal issues.

Canadian-born David Card of the University of California, Berkeley, was awarded one half of the prize for his research on how minimum wage, immigratio­n and education affect the labour market, while the other half was shared by Joshua Angrist from the Massachuse­tts Institute of Technology and Dutch-born Guido Imbens from Stanford University for their framework for studying issues that can’t rely on traditiona­l scientific methods.

The Royal Swedish Academy of Sciences said the three have “completely reshaped empirical work in the economic sciences.” “Card’s studies of core questions for society and Angrist and Imbens’ methodolog­ical contributi­ons have shown that natural experiment­s are a rich source of knowledge,” said Peter Fredriksso­n, chair of the Economic Sciences Committee.

“Their research has substantia­lly improved our ability to answer key causal questions, which has been of great benefit for society.” Card looked at what happened when New Jersey raised its minimum wage from $4.25 to $5.05, using restaurant­s in bordering eastern Pennsylvan­ia as a comparison group.

Contrary to previous studies, he and his late research partner Alan

Krueger found that an increase in the minimum wage had no effect on the number of employees. Card later did further work on the issue.

Overall, the research concluded that the negative effects of increasing the minimum wage are small and significan­tly smaller than believed 30 years ago, the Nobel committee said.

Card also found that incomes of those who are native born to a country can benefit from new immigrants, while immigrants who arrived earlier are the ones at risk of being negatively affected.

Angrist and Imbens won their half of the award for working out the methodolog­ical issues that allow economists to draw solid conclusion­s about cause and effect even where they cannot carry out studies according to strict scientific methods.

Card’s work has challenged convention­al wisdom in labour economics, while Angrist and Imbens showed that it was possible to identify a clear effect from an interventi­on in people’s behaviour


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