The Nobel Prize winner in economics revolutionized thinking about the minimum wage

David Card, a UC Berkeley economist who won the 2021 Nobel economics prize.
David Card, a UC Berkeley economist who won the 2021 Nobel economics prize.
Image: UC Berkeley/Handout via REUTERS.
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David Card, whose research on the minimum wages of fast-food workers deepened the understanding of how labor markets operate, was awarded the Nobel prize in economics today (Oct. 11).

Card shared the prize with fellow US-based economists Joshua Angrist and Guido Imbens who demonstrated what cause-and-effect conclusions can be drawn from natural experiments and helped increased the credibility of empirical research, according to the Nobel Economics Sciences Prize Committee.

Card, 65, an economics professor at University of California, Berkeley, published a paper in 1993 with the late economist Alan Krueger that provided a different way of thinking about setting wages. Prior to their paper, the conventional wisdom in economic research was higher minimum wages reduced employment.

Card and Krueger compared the employment rates at 410 fast-food restaurants, including Burger King, KFC, and Wendy’s, in New Jersey and nearby Pennsylvania. They compared employment, wages, and prices at stores in New Jersey, which had raised its minimum wage, a year before, from $4.25 to $5.05 per hour a year and Pennsylvania, which hadn’t changed its minimum wage. The researchers found the changes in one state’s minimum wage made no difference in employment between the two states.

The effect of Card’s minimum wage paper

The paper would have a significant impact when it was published and continues to have ongoing relevance today amid the renewed focused on the economic conditions of low-wage workers. Since its publication, most mainstream economists have changed their positions on minimum wages. In 1978, 90% of members surveyed by the American Economist Association agreed that minimum wages substantially lower employment among low-wage workers. In 2000, only 46% agreed.

The idea that employers have some discretion in setting wages has really taken off and paved the way for research on the differences in wages between white and Black workers as well as the male-female wage gap, said Card, in a livestream from UC Berkeley today.

Card and Krueger’s paper would go on to influence policies globally. The former UK prime minister Gordon Brown and his Labour Party economic advisor Ed Balls used the research to justify their plan for a UK national minimum wage, which was introduced in 1999. Minimum wage was initially opposed by the Conservative Party on the grounds that it would cost jobs, but the policy now has support across both parties.

Nevertheless, back in the US, the federal minimum wage has remained stuck at $7.25 since 2009. But pressure for a national $15 minimum wage has gained momentum, particularly after Florida approved a ballot measure last year to increase the state’s minimum wage to $15 an hour by 2026.

The debate over the wisdom of having a minimum wage remains contentious in Washington, but many economists have moved on to discussions about when it makes sense to raise it and by how much, Attila Lindner, a University College London professor who has studied the impact of raising wages in US cities, previously told Quartz.

The expansion of empirical work in economics

Card’s other research includes how immigration does not have a negative effect on native-born residents as well as the positive impact of school resources on students’ future success.

When Card, originally from Ontario, Canada, first heard today’s news, he thought it was a joke by an old friend who would pull this kind of stunt: leaving a message on the answering machine and saying it is someone from Sweden calling at 2 am.

Berkeley said it awarded Card a parking space near his office, an honor bestowed on Nobel prize winners. But like many faculty members, Card rides his bike to work, so the school will consider creating an alternative honor for him.