Nobel prize won for showing increase in the minimum wage doesn’t cost jobs
Groundbreaking study on the minimum wage that has reshaped the field of economics.
The Nobel Prize for Economics this year has been awarded to an economist for a study that revolutionised thinking about the minimum wage and the way economics should be studied.
David Card, with his associate Alan Krueger, found that an increase in the minimum wage did not kill jobs. The research was a bombshell for the economic world, challenging an orthodoxy that had dominated the field for decades.
Before their study it was accepted that “everyone knew” that increasing the minimum wage would cost jobs, as employers wouldn’t have the money to keep on as many staff.
Card and Krueger conducted an innovative “natural experiment”, which was based on real life rather than the purely theoretical framework that had been done previously.
In 1992, the US state of New Jersey increased its minimum wage to be the highest in the US. The neighbouring state of Pennsylvania did not.
Card and Krueger surveyed 400 outlets on either side of the border, to see if there were any changes to the number of workers employed in the cities that only differed in what they had done to the minimum wage.
They emphatically found that the rise in the minimum wage had not cost jobs.
Their work has since been supported by the International Monetary Fund and the OECD. It has been cited in judgments of Australia’s Fair Work Commission in their minimum wage decisions.
Prof. Card’s alma mater, University of California, Berkeley, said he had “challenged orthodoxy and dramatically shifted understanding of inequality and the social and economic forces that impact low-wage workers”.
Card also conducted research with similar “real life” methodology, which found immigration did not reduce native-born workers’ wages. In a 1990 study he analysed what happened to the labour market in Miami after 1980, when there was a large influx of immigrants from Cuba.
The arrival of the immigrants – known as the Mariel boat-lift – “had virtually no effect on the wage rates of less-skilled, non-Cuban workers”.