David Card

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David Card.

Paul Kennedy

David CardCanadian-American economist who was awarded one-half of the 2021 Nobel Prize for Economics (the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel) “for his empirical contributions to labour economics.” The other half of the prize was awarded jointly to the Israeli-American economist Joshua Angrist and the Dutch-American economist Guido Imbens, who were recognized “for their methodological contributions to the analysis of causal relationships” in labour markets. The work of the three economists showed how certain “natural experiments,” or real-world social developments arising from policy changes or chance events, because of their resemblance to controlled or randomized experiments in medicine and the physical sciences, can be used to clarify causal relationships in the analysis of labour markets, such as the relationship between employment rates and the minimum wage and the relationship between the level of education and income. The laureates’ approach to natural experiments provided a solid empirical ground on which to address important questions of social and economic policy and, more broadly, “revolutionised empirical research” in the social sciences, in the words of the Economic Sciences Prize Committee.

Card received a B.A. degree from Queen’s University in Kingston, Ontario, Canada, in 1978 and a Ph.D. in economics from Princeton University in Princeton, New Jersey, in 1983. At the time of his award, Card was Class of 1950 Professor of Economics at the University of California, Berkeley. He previously was a member of the economics faculties of the University of Chicago (1982–83) and Princeton (1983–97) and had held visiting appointments at Columbia University (1990–91), Princeton (2001–01), and Harvard University (2008).

A long-standing challenge to empirical research in economics has been that of clearly identifying the economic or social effects of changes in economic policy and the economic or social causes of changes in economic conditions. Such causal relationships are difficult to establish because the nature of the phenomena under study makes it generally impossible for researchers to create control groups—that is, groups sharing the same relevant features as a corresponding experimental group, except that the latter is subjected to a specific change, or “intervention,” which can then be identified as the cause of any resulting change in that group. To test the hypothesis that additional higher education results in higher incomes, for example, researchers conducting a standard experiment would need to randomly assign large numbers of individuals to control and experimental groups and then ensure that members of the latter received additional higher education and that members of the former did not. In reality, of course, researchers cannot perform such an experiment, because they cannot control how much education other people receive.

Although causal relationships in economics and other social sciences generally cannot be identified through standard experiments, the work of Card, Angrist, and Imbens has demonstrated that many such questions can be addressed on the basis of natural experiments. In work published in the 1990s, for example, Card and his colleague Alan Krueger used a natural experiment to refute the conventional notion in labour economics that increases in the minimum wage lead to lower rates of employment in low-paying industries. Using the fast-food labour market in New Jersey as an experimental group and the similar market in neighbouring eastern Pennsylvania as a control group, Card and Krueger determined that the increase in New Jersey’s minimum wage from $4.25 to $5.05 in the early 1990s did not reduce fast-food employment in that state, because employment in the industry remained comparable to that of eastern Pennsylvania, where no increase in the minimum wage had occurred (indeed, industry employment in New Jersey slightly increased). Their findings led to many follow-up studies, including by Card himself, that confirmed the general conclusion that minimum-wage increases have only a small negative effect on employment.

Card again relied on natural experiments to investigate purported causal relationships between immigration and changes in segments of the labour market, such as decreases in wages and employment among workers with low levels of education. Using as an experimental group the wage and employment situation in Miami following the massive influx of Cuban immigrants in the spring and summer of 1980 (after Fidel Castro temporarily permitted Cubans to leave the country) and as a control group the wage and employment situations in four other cities, Card found no negative effects for undereducated workers relative to similar workers in other cities. Card and Krueger also investigated the causal relationships between state investments in public schools and the academic performance of students and their later success in labour markets. Their work disproved another conventional notion of labour economics, that resource levels in public schools have little impact on individuals’ academic performance or economic opportunities in later life.

Card’s labour market research with natural experiments was complemented and extended by Angrist and Imbens and their colleagues, who explored the methodology of natural experiments and defined the types of causal conclusions that could be drawn from them.