How Nobel winner David Card transformed economics

On Monday, Oct. 11, labor economist and UC Berkeley professor of economics David Card won the 2021 Nobel Prize in economics. In this interview, Card talks with Berkeley News writer Edward Lempinen about why his research on the economics of the minimum wage, immigration and education was so controversial — and how it still is today.

David Card, a labor economist and UC Berkeley professor of economics, won the 2021 Nobel Prize in economics. (UC Berkeley photo by Keegan Houser)

Read a transcript of Berkeley Voices episode #87: “How Nobel winner David Card transformed economics.”

[Music: “TwoPound” by Blue Dot Sessions ]

Intro: On Monday, Oct. 11, David Card, a labor economist and professor of economics at UC Berkeley, won the 2021 Nobel Memorial Prize in Economic Sciences.

He won for the work that he started in the 1990s on the economics of the minimum wage, immigration and education. These are high-profile issues, always at the center of policy conflicts in the U.S. Card was awarded half the prize. The other half was shared by economists Joshua Angrist of MIT and Guido Imbens of Stanford University.

In 1995, Card and his colleague Alan Krueger of Princeton University published the book, Myth and Measurement: The New Economics of the Minimum Wage. That same year, Card won the Clark Prize from the American Economic Association. The prize is given to economists under the age of 40 who make major contributions to the field. It’s very prestigious.

This is Berkeley Voices. I’m Anne Brice.

[Music fades]

Today, I’m joined by a colleague of mine, Edward Lempinen. He’s a writer in UC Berkeley’s Office of Communications and Public Affairs. He covers economics and public policy, among several other topics.

Hi Ed, thanks for joining me today on Berkeley Voices.

Edward Lempinen: Hi, Anne. Thanks for having me. It’s good to be here.

Anne Brice: So, you have been talking to Professor Card a lot this past week. And I’m wondering if you have learned anything about him and his work that has surprised you?

Edward Lempinen: I think that there are a couple of things, Anne, that are really striking in David Card’s story. The most important of which is he really transformed the field of economic research. Working with Alan Krueger, his colleague from Princeton, perhaps a few others in the ‘80s and ‘90s, they really changed how economic research is done and how we understand the real-life dynamics of economics.

But the thing you have to understand is when you are a young person or you’re early in your career, and you come in and you challenge the status quo, you’re going to generate controversy. And you’re going to generate resistance.

You know, in music when the Beatles came in, people who used to listen to Glenn Miller and Frank Sinatra were upset. In journalism, when you had a conventional model of journalism, and then Hunter Thompson came in, people were upset. He changed the framework, he shifted the paradigm.

So, the same thing happened in economics in the 1990s. You had a group of mainstream, conventional economists, very accomplished, who had been working the same way for decades, really. And their way was to use their own acumen, and their own imaginations to develop models of economic dynamics.

But it wasn’t much related to data. It wasn’t much related to actual experience. So, here comes David Card. Here comes Alan Krueger. And they say, “No. The minimum wage? Well, we need data. We can’t just assume that higher wages cause a reduction in hiring. Immigration? We can’t just assume that immigration causes a negative economic impact.”

So, they challenged conventional wisdom, and they overturned it. And that was very controversial. And the controversy lingers.

Anne Brice: One thing that struck me during the interview was how humble he is. How the Nobel Prize, which is a huge honor, it’s special to him, but he doesn’t think it’s going to change his life. It’s not like, “OK, I’ve done this, I’ve accomplished the ultimate.” And so, I’m curious what your experience with that has been?

Edward Lempinen: Well, you make a really good point, Anne. His humility is… he takes it to the next level. It’s almost as if he doesn’t think he should be talking about himself, and he’s almost uneasy with the recognition that the Nobel Prize, the Clark Prize and other honors bring him. He’d rather talk about his students. Clearly, he’d rather talk about the ideas in the work and how economics works and how economics education works.

[Music: “Eggs and Powder” by Blue Dot Sessions ]

But it should be pointed out here as part of this consideration: He is enormously popular among his colleagues, among graduate students, students in the department. He’s admired. And there’s a great deal of affection for him in his department.

And one of his colleagues told me that really, you should see that he has so many students whose lives he’s touched. It’s as if he’s created a global network of economists who are at least schooled in these more modern ideas, even if they don’t always agree with him.

Anne Brice: Wow, that’s incredible.

Edward Lempinen: Yeah. His influence, I think, it’s not just the research, but it’s the education that he’s provided to so many students.

[Music fades]

Anne Brice: Alright, should we get into it?

Edward Lempinen: Sure.

Anne Brice: Alright, here is your interview with 2021 Nobel Prize winner David Card:

Ed Lempinen: Let me start with a lighter question, perhaps. You’ve had a little bit of time now to absorb the announcement of the Nobel Prize. I wonder how you describe your reaction at this point. How are you feeling about it?

David Card: Well, I think, something I’ve realized is that most people outside of economics, people in the media or just general people, the Nobel Prize has an incredible importance for some reason that I don’t fully understand. I guess what’s going on is there’s only a very limited attention span. Now that I think about it, I guess this must be true for all these Nobel Prizes. And so, there’s all kinds of interesting work going on in many different areas, you know? For example, literature, I think of the Nobel Prize in Literature, it’s completely insane. There’s so many great authors and they choose one at random every year or almost at random every year. And me getting selected for this prize is kind of at random, in my view.

Essentially, what it does is… it does have a positive effect on people like my mother. She never really looked at the internet to see that I had citations for my research or anything like that. Or my friends from high school who have been in touch the last couple of days. Some of them I’ve kept up with, but others, not. But most of them don’t really kind of know what you do.

And so, the same thing happens with many of my former Ph.D. students. They all send you an email, say, “Well, you can’t believe this, but somebody came up to me in the street, blah blah blah.” So, they get some positive spillover on all this. So, all the people that you were attached to get some sort of spillover on this. That’s pretty interesting. So, you realize it’s a big benefit to your entire extended circle of friends in some ways. It’s actually hard to figure out why, but that’s the main thing that I’ve taken away from it.

Edward Lempinen: Very interesting. Your work today is credited with transforming methodology or really impacting methodology so that there is less focus on theory and more focus on data and experience. And so I wonder, was there a moment in your career where you thought, “These old systems of economics and economic thought are too limited and there’s a better way to do this and we’re going to try and do it.” Was there such a moment?

David Card: Well, my interest has always been not so much on the theoretical framework or focus, although that’s extremely important and interesting, but rather on really kind of nuts and bolts thing of, “OK, we think we understand some view of the labor market or, in many cases, there’s actually competing paradigms and sometimes the differences between these paradigms may seem extremely small, but fundamentally they have very different implications for one thing or another.

You know, I think it’s exaggerating how great economics is to say this is similar to something going on in physics or chemistry, but that was always kind of my hope: that we could make economics a little bit more like physics. I spent several years as a physics major before I went into economics.

And, you know, in physics, there’s people who are experimentalists and there are people who are theorists and experimentalists are widely respected and people think, “OK, that’s a real thing. You’re an experimental physicist, that’s a legitimate profession.” At the time that I started on economics, there wasn’t really an equivalent in economics. And maybe one thing that’s happened is that there’s sort of an equivalent now. It’s perfectly OK to be an economist who doesn’t innovate and develop new theoretical models. What you do is try and test between alternative existing theoretical models.

Edward Lempinen: You’ve alluded to the fact that the findings were controversial, and I wonder if you can describe the controversy that emerged at the time, and I wonder whether you were surprised by it?

David Card: You’ll hear people say something like there is a law of demand and that that’s one of the fundamental ideas in economics. Now, the so-called law of demand is a mathematical proposition. I think it was probably formalized in the 1890s through 1910s and, you know, fully understood and formalized completely in the 1930s by a British economist named John Hicks, who kind of worked it all out.

This is a model that describes how an employer reacts when the employer is in that situation, which I call Model 1. The employer is facing a labor market where there’s a market wage — $13 an hour. It can hire all the workers it wants at $13 an hour. All the workers are the same. There’s no advantage to paying $13.50. You would never do that because you get the same workers. So, you pay $13. You pay $12.50, you get nobody.

In that model, there’s a strong prediction that if you say, “OK, now this employer has to pay $14 an hour,” they will potentially reduce, but they would never increase the number of employees they hired. That’s the law of demand.
Model 2 says if there’s an employer out there that’s having trouble recruiting and has “help wanted” signs and a recruitment bonus, and you said to that employer, “Why don’t you raise your wage?” And they would say, “Well, if I raise my wage, to tell you the truth, I’d have to pay more for the people I already have. That’s going to cost me quite a bit and I might get a few extra workers. Might not be worth it.” That’s Model 2.

And if you force that employer to raise his wage, he will definitely increase employment, at least initially. So, that’s why we studied it, because we thought it would be interesting to compare those two.

OK, now, Model 1 is an extraordinarily restrictive set of assumptions. For some reason, a huge number of economists think that if you don’t believe in Model 1 — like, literally believe in Model 1 as if it was a religious proposition — you’re not an economist. You must be something like a left-wing lunatic or possibly a communist or, you know, virtually anything. And that’s still, to some extent, true.

And so, that group was really outraged by the recognition our work got, the fact that it was published in the American Economic Review, the fact that the AEA then, you know, eventually decided to give me the Clark Prize. There’s a pretty strong written track record of very nasty things that they said.

I’ll give you an example. So, at the American Economic Association meeting where I was to receive the Clark Prize. The president of the AEA had been under harsh criticism for giving me this prize, and so a bunch of more conservative types said, “Well, we’ve got to have a forum where we can have a discussion about minimum wages at the same meeting so that it can be revealed what a charlatan Card is and how bad his work is.”

And so, they set up, you know, one of the sessions at the AEA meetings and there was me and then about five people writing papers, you know, outrageously bad papers, by the way, it turned out. So, I had to sit through that. There wasn’t so much public defense. When you’re being criticized in economics, it’s kind of you’re on your own. It’s the opposite of the Nobel Prize. (Laughs) So, I’ve been on both sides of this, I guess, you could say.

You know, at that time, quite a few people, not just extreme right-wingers, but pretty much the mainstream of the profession, was kind of skeptical about minimum wages. I keep a record of every time somebody writes something about minimum wages that I think is inconsistent with the facts and I mean, many of my colleagues have written things like that, even recently. Because they don’t think about the labor market from the point of view of actually having participated in it. They think about it from what they were taught in Economics 1, 30 years ago.

Edward Lempinen: And so, back at that time, when you were mid-career, how did you respond to the controversy? Did it shock you? What did it provoke in you?

David Card: It was pretty disappointing, actually. My first job was at the University of Chicago, and I was there for a year and I met a bunch of people, many of the famous people that are somewhat affiliated with the labor economics field and a few of the younger people that then went on and became well-known. And I went back and gave a seminar there around 1992, and it was a very hostile environment.

Edward Lempinen: Wow.

David Card: And it was kind of disappointing because it wasn’t really like anybody wanted to have a real discussion about, “OK, how does the labor market work? And what does it show?” They really felt threatened by these findings.
I mean, I guess it’s like lots of other things that you hear about. If you’ve spent much of your life working with a certain class of models, especially people that do modeling work and are deeply familiar with that, then that’s, you know, something you understand and you’re familiar with and happy with and you can guess how it’s going to work before you start. You know, people that are good at math, it’s amazing how much they can figure out how an equation is going to look when it’s finally solved out, even before they start.

So, you develop all of that and then somebody comes along and says, “Well, actually, you’re going to have to change your model.” Or, “Maybe you’ll want to think about changing your model for certain kinds of cases.”

But what really happens is the younger people change their model, the older people kind of keep going. And you know, many, many people will tell you that: You don’t win very many converts or people that want to rethink things who are, you know, beyond, I don’t know, age 30, maybe.

But you do eventually, if you’re lucky enough to have your work presented to the younger people. And partially, it’s because younger people need new challenges and need new things to work on. And what happened after our work was not much for about 10 years and then maybe starting in the 2000s, maybe even as late as 2010, maybe 2005 or so, people started to go back and look at other minimum wage episodes, and that literature really then kind of took off. And then, at the same time, other countries got involved with raising minimum wages or introducing minimum wages.

So, anyway, one of the things that happened is, Alan and I, after all this, our book had come out, we said, you know, “If we do one more paper on minimum wage, people are just going to trash us and think that we’re following an ideological thing.” By the way, if you read our book or any of our papers, we never, ever once said, “We should raise the minimum wage.” Or that the optimal minimum wage is X or anything like that. We said, “There’s pluses and minuses. There’s people who benefit from this, people who lose from the minimum wage.”

And it’s kind of surprising how vitriolic the discussion is. We didn’t take a policy position on that. I don’t take policy positions on anything. You’ll notice that people ask me questions and I always evade them. I don’t feel it’s really my place to take a position on normative questions.

Edward Lempinen: But when you’re formulating the question, is there a desire colored by policy interests or interests of justice in saying, “Well, you know, minimum wage is really important. It affects a lot of people. It’s a source or a locus for injustice. And therefore, let’s ask this question without making any recommendations.” Is that how the question is, to some degree, formulated?

David Card: No. I guess this seems very odd to people, but in my view, I mean, Keynes said something in some of his writing about the importance of economic ideas. You know, that if you really want to change things, you have to basically change the way the economic ideas are formulated.

And so, I believe that, to the extent that it had any influence or would hope to have any influence, it’s not going to be my standing up and saying, “We need to raise the minimum wage.” That isn’t going to help. And in fact, that’s going to hurt because it’s going to damage my reputation as a researcher — because people are going to think, “Well, this guy, basically, has an opinion, blah blah blah. He’s just an advocate.”

So, instead, if you really think that there’s something wrong with the way we’re modeling this, and if we modeled it a different way, we would reach a different conclusion. If you really think that, then you should go out and try and find evidence for that and find out what it is that the current thinking has gotten wrong. And try and push the direction of research in another direction.

To me, it seems like if you really want to change things in the long run, there’s plenty of advocates. A lot of people are comfortable being advocates. You know, attorneys are trained to be advocates. That’s the whole profession. I don’t really see the attraction of that profession, but lots of people do. There’s way more attorneys than economists.

Edward Lempinen: I wonder, is there a message in your experience and in the controversies you endured? Is there a message that early career researchers can learn from today?

David Card: Well, I think that economics is a little more open-minded than it used to be. I hope so. It’s certainly more open to empirical evidence than it used to be.

There was a famous economist at Harvard, Robert Barro, who said, “Well, it doesn’t really matter, as long as they spell your name right.” (Laughs) So, there’s one element there because, you know, controversy or attention may be helpful or may get people taking a look at the work and evaluating it.

Right now, you know, economics is quite a competitive field. It’s very difficult to get into grad school in economics. It’s probably one of the hardest fields to get into. We have among the toughest publication standards. The top journals in economics have, like, a 3% acceptance rate for papers. So, people have to have a kind of a long view and say, “OK, I’m going to try and produce really high-quality work and hope that that will be recognized.” I believe that that has worked out for me, and I hope it would work out for younger people today, as well.

[ “Dirty Wallpaper” by Blue Dot Sessions ]

Edward Lempinen: Let me ask you one last question, then I’ll let you go. Do you think winning the Nobel is going to change your life?

David Card: No, I don’t think so. I mean, I guess what was going to happen is… previously when I would be introduced or something, they would always say, “Blah blah blah, and won the Clark Prize in 1995. But since 1995 was such a long time ago, that was becoming a little less salient. So now, I’m a little bit updated.

But, fundamentally, I mean, I actually have got to get to work. I’m meeting with my team of co-authors tomorrow morning, and I’m behind on my delivery of my part of the work product we’re supposed to be doing this week. So, I don’t think it’s going to change very much. No.”

Outro: This is Berkeley Voices , a Berkeley News podcast. I’m Anne Brice.

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