The Canadian Card

Canadian media are all a'flutter at the news that a Canadian economist is one of the winners of this year's Nobel Prize in economics.  In truth, it's not a "real" Nobel Prize, but then again the laureate in question hardly qualifies as a Canadian economist any more. David Card was born in Guelph, Ontario, and did his undergraduate work at Party Central (aka Queen's University, Kingston), but since graduating has plied his trade at a formidable list of US schools, including Princeton, Columbia, Chicago and Berkeley. He has US citizenship alongside the Canadian one he acquired at birth. Still, we mustn't be churlish, so sincere congratulations to Professor Card.

The research for which he has been honoured goes back in some cases to the 1990s, and falls into the category of applied econometrics known as "natural experiments".  Much econometrics involves the painstaking selection of randomized data in order to test hypotheses and if possible establish some sort of causal links between variables. Card's approach involves looking at situations in which the real world has in effect established quasi-random conditions, and then trying to tease out conclusions from that.

The work for which he is best known, carried out with a colleague who has since passed away,  involved an increase in the minimum wage in the state of New Jersey in the early 1990s. Conventional economic wisdom at the time suggested that such a move would result in reduced employment. However, by studying employment in the fast food sector in the western part of the state and comparing it to adjacent parts of Pennsylvania, where minimum wage was unchanged, Card was able to show that job losses did not in fact occur. Another similar study by Card showed that a sudden influx of Cuban refugees into south Florida in the Castro era dis not result in lower wages in that region. 

This is altogether very different from the economics that your humble blogger studied half a century ago. The curriculum was heavy on theory, with a substantial larding of mathematics, with linear algebra and difference equations part of the daily diet. Things are changing rapidly as the real world invades the halls of academe, and today's award is a recognition that researchers like Card and his fellow honorees are changing the way economists look at the world. 

Natural experiments are not perfect -- the results are perhaps best described as suggestive rather than definitive. What was true on the NJ/PA border in the 1990s is not necessarily true in other places at other times. Still, it's always helpful to be reminded that the handed-down wisdom of generations of economists, even about something as basic as the supply and demand for labour, should never be blindly accepted.