Nobel Prize

Economics is unique in the fact it’s very hard to prove anything? Want to know if a drug works? Test 1,000 people. Experimenting on the minimum wage or tariffs isn’t so easy. We compare real-world economies and account for scores of variables. The latest Nobel Prize winner, Canada’s David Card, won the award not only for his findings but his approach to drawing conclusions from purely observational data. In the 1990s he transformed the way data and economic studies were handled; 30 years later he has been rewarded. 

The effect of migration on unemployment is a hotly contested topic in economics, mainly because it’s so politicised. In many cases, migration occurs because of a strong economy with growing wages and falling unemployment. Migrants move to the opportunity. This makes it hard to test the effect of migration. Card thought outside the box by looking at a unique example of mass, unexpected migration unrelated to economic circumstances: the mass Cuban migration from in the 80s. In its simplest form, economic metrics could be observed before and after 1980 and compared to other American cities. In short, migration had no impact on employment despite the labour force increase by 7%. This was known as a natural experiment.

Card also completed a “natural experiment” to test the effect of raising the minimum wage. Even today, labour economics are spoken about in theoretical terms; “raising the wage means businesses can’t afford to grow”. Card compared fast-food workers in neighbouring towns on the border between New Jersey and Pennsylvania. NJ had just raised the minimum wage but otherwise, almost everything was identical. Quite simply, a wage increase didn’t lead to job losses.  

These may seem like relatively minor discoveries but 30 years ago they changed economics. Not only that, but they experimented with economics in a way no one else.