Nobel economics prize goes to trio for work on minimum wage effects

Stockholm  — Economists David Card, Joshua Angrist and Guido Imbens won the 2021 Nobel economics prize on Monday for pioneering “natural experiments” to show real-world economic effects in areas from the US fast-food sector to migration from Castro-era Cuba.

Unlike in medicine or other sciences, economists cannot conduct rigidly controlled clinical trials. Instead, natural experiments use real-life situations to study effects of policies on the world, an approach that has spread to other social sciences.

“Their research has substantially improved our ability to answer key causal questions, which has been of great benefit to society,” says Peter Fredriksson, chair of the economic sciences prize committee.

Past Nobel Economics prizes have been dominated by US institutions and this was no exception: Canada-born Card works at the University of California, Berkeley; Angrist at Massachusetts Institute of Technology; and Dutch-born Imbens at Stanford University.

One experiment by Card on the affect on the fast-food sector of a minimum-wage increase in the US state of New Jersey in the early 1990s prompted a review of the conventional wisdom that such increases should always lead to falls in employment.

Another studied the affect of a move by Fidel Castro in 1980 to allow all Cubans who wished to leave the country to do so. Despite high ensuing migration to Miami, Card found no negative wage or labour effects for Miami residents with low levels of education.

“Many important questions are about cause and effect. Will people become healthier if their income increases ... do lockdowns reduce the spread of infections?” Nobel panellist Eva Mörk said.

“This year’s laureates have shown that it is still possible to answer these broad questions about cause and effects and the way to do that is to use natural experiments.”

Mörk, economics professor at Uppsala University, noted that the pandemic had created scope for a good natural experiment on education outcomes due to the varying disruption caused to children in different school years but whose birth times in some cases were only separated by hours.

“So here, nature has given us an experiment that makes it possible to answer questions that otherwise would not have been possible to answer,” she said.

The committee noted that natural experiments were difficult to interpret, but that Angrist and Imbens had in the mid-1990s solved methodological problems to show that precise conclusions about cause and effect can be drawn from them.

“I was just absolutely stunned to get a telephone call, then I was just absolutely thrilled to hear the news,” Imbens said on a call with reporters in Stockholm, adding he was thrilled to share the prize with two of his good friends. Angrist was best man at his wedding.

The prize, formally known as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, is the last of this year’s crop of Nobels and sees the winners share a sum of 10-million Swedish kronor ($1.14m).

The prestigious prizes for achievements in science, literature and peace were created and funded in the will of Swedish dynamite inventor and wealthy businessman Alfred Nobel.

They have been awarded since 1901, though the economics prize — created through a donation from Sweden’s central bank on its 300th anniversary — is a later addition that was first handed out in 1969.

While the economics award has tended to live in the shadow of the often already famous winners of the prizes for peace and literature, laureates over the years include a number of hugely influential economists, such as the Austrian-British Friedrich August von Hayek and American Milton Friedman.

Reuters