P Professor David
S
Last autumn, David Card received the award for contrarian researc
Card was awarded
he published long ago. By Beatrice Aronson.
the Nobel
Professor Prize
David Card in S’
was awarded the Nobel Prize in Economic
Sciences
Economicin 2021Sciences
for work that he completed 30 years ago. Studyin
the effects of minimum wage and W*immigration, Professor Card use
in 2021 for work that
empirical research to dispute the long-held economic assumption
he both
that completed 30 Using data to add nuance or challenge
were job killers.
assumptions
years [Link] a feat he’s repeated on topics ranging from voting
machines to local education options.
D
Studying the effects of minimumL andwage
immigration, Professor Card used empirical
research to dispute the long-held economic
assumptions that both were job killers.
Migration
P
S
S’
W*
D
L
The direction of the effect seems unambiguous: more migrants mean lower wages.
Average wage in city i
Controls for region and industry/occupation mix
Wi = α + δImmigrantsi + β1X1i + β2X2i + β3X3i + εi
Percent of population immigrants
Estimates of δ were generally small and statistically insignificant. Some estimates
were, in fact, positive. WHY?
Average wage in city i
Controls for region and industry/occupation mix
Wi = α + δImmigrantsi + β1X1i + β2X2i + β3X3i + εi
Percent of population immigrants
Estimates of δ were generally small and statistically insignificant. Some estimates
were, in fact, positive. WHY? REVERSE CAUASILTY. Immigrants are
attracted to cities with tight labor markets
and high wages.
125,000 Cubans immigrated
on privately charted boats
during the months of May-
September, 1980.
Approximately half settled in
Miami.
The Mariel Boatlift as a natural experiment
• May-September, 1980
• 125,000 Cubans immigrated to the US on privately charted boats
• Approximately half settled in Miami
The Mariel Boatlift as a natural experiment
• May-September 1980
• 125,000 Cubans immigrated to the US on privately charted boats
• Approximately half settled in Miami
• Increased the Miami labor force by 7 percent
• Increased the Cuban labor force in Miami by 20 percent
• Mariels, were, on average less skilled than Cubans already living in Miami
– Most couldn’t read or speak English
– Lower levels of educational attainment than Cubans already living in Miami
• Political decision that had nothing to do with labor market conditions in the
United States or Miami
Models and Results
ln(Wi) = α + β1Miamii + β2Educationi + β3Experiencei +
β4Femalei + β5Part-timei + εi
Sample is drawn from the CPS. Composed of Cubans
from across the United States.
Look how simple this regression is!
Note that wage is logged
ln(Wi) = α + β1Miamii + β2Educationi + β2Experiencei +
β3Femalei + β4Part-timei + εi
Dichotomous variable = 1 if person i lived in Miami, = 0 if not
ln(Wi) = α + β1Miamii + β2Educationi + β2Experiencei +
β3Femalei + β4Part-timei + εi
ln(Wi) = α + β1Miamii + β2Educationi + β2Experiencei +
β3Femalei + β4Part-timei + εi
CPS doesn’t have information on work history…
Potential Experience = Age – Years of Education
Estimates of β1 are roughly constant. Can’t reject the
hypothesis that they are equal.
Minimum Wage in a Competitive Labor Market
Wage
Unemployment
S
WMIN
W*
MRP
D
L L
LMIN L0 LMIN L0
Market Firm
Initially, the firm pays W*, the market wage. When the government imposes a
minimum wage above the market wage, employment falls.
Estimating the Effect of Minimum Wage on
Employment
A ten percent increase in the minimum wage is associated with a one to three
percent decrease in employment.
Changes in the minimum wage could be capturing economic conditions in year t
(or year t + 1).
I. The New Jersey Law
A bill signed into law in November 1989 raised the federal minimum wage from
$3.35 per hour to $3.80 effective April 1, 1990, with a further increase to $4.25
per hour on April 1, 1991. In early 1990 the New Jersey legislature went one
step further, enacting parallel increases in the state minimum wage for 1990
and 1991 and an increase to $5.05 per hour effective April 1, 1992. The
scheduled 1992 increase gave New Jersey the highest state minimum wage in
the country and was strongly opposed by business leaders in the state (see
Bureau of National Affairs, Daily Labor Report, 5 May 1990).
In the two years between passage of the $5.05 minimum wage and its effective
date, New Jersey's economy slipped into recession. Concerned with the
potentially adverse impact of a higher minimum wage, the state legislature voted
in March 1992 to phase in the 80-cent increase over two years. The vote fell just
short of the margin required to override a gubernatorial veto, and the Governor
allowed the $5.05 rate to go into effect on April 1 before vetoing the two-step
legislation. Faced with the prospect of having to roll back wages for minimum-
wage earners, the legislature dropped the issue. Despite a strong last-minute
challenge, the $5.05 minimum rate took effect as originally planned.
II. Sample Design and Evaluation
Early in 1992 we decided to evaluate the impending increase in the New
Jersey minimum wage by surveying fast-food restaurants in New Jersey and
eastern Pennsylvania. Our choice of the fast-food industry was driven by
several factors. First, fast-food stores are a leading employer of low-wage
workers: in 1987, franchised restaurants employed 25 percent of all workers
in the restaurant industry (see U.S. Department of Commerce, 1990 table 13).
Second, fast-food restaurants comply with minimum-wage regulations and
would be expected to raise wages in response to a rise in the minimum wage.
Third, the job requirements and products of fast-food restaurants are relatively
homogeneous, making it easier to obtain reliable measures of employment,
wages, and product prices…
NJ minimum wage of $5.05 per hour comes into effect on April 1, 1992.
Difference-in-Differences estimates is based on 4 means and 3 differences.
DiD
Estimate
DiD estimate can be interpreted in a causal fashion if the parallel trends assumption holds.
Using Regression Analysis
Can use regression analysis to obtain the DiD estimate:
Event study specification to capture dynamic
effects:
MW on April 1, 1992
Or more generally:
“The inverse relationship between quantity demanded and price is the core
proposition in economic science, which embodies the presupposition that
human choice behavior is sufficiently rational to allow predictions to be
made. Just as no physicist would claim that “water runs uphill,” no self-
respecting economist would claim that increases in the minimum wage
increase employment.
Such a claim, if seriously advanced, becomes equivalent to a denial that
there is even minimal scientific content in economics, and that, in
consequence, economists can do nothing but write as advocates for
ideological interests. Fortunately, only a handful of economists are willing
to throw over the teaching of two centuries; we have not yet become a
bevy of camp-following whores.”
~James M. Buchanan, 1986 Nobel laureate in economics, writing
in the Wall Street Journal on April 25, 1996
• [Link]
[Link]