Economists David Card, Joshua Angrist and Guido Imbens received, this Monday, the Nobel Prize for Economics for “drawing conclusions from unexpected experiences” and applying them to the analysis of the labor market.
In a statement, the Royal Swedish Academy of Sciences announced that the Nobel Prize for Economics 2021 has been awarded, in a divided manner, to David Card for “their empirical contributions to the labor economy”, being the other half of the pair Joshua Angrist e Guido Imbens for “their methodological contributions to the analysis of causal relationships”.
This year’s laureates, considered the Swedish academy, “gave us new insights into the labor market and showed us what conclusions about cause and effect can be drawn from natural experiences”, adding that their approach “has spread to others fields and revolutionized the empirical research“.
“Many of the big questions in the social sciences deal with cause and effect. How does immigration affect wages and employment levels? How does a longer education affect one’s future income? These are questions that are difficult to answer because we have nothing to use as a benchmark. We don’t know what would have happened if there had been less immigration or if that person had not continued their studies”, it reads.
“However, this year’s laureates showed that is it possible to answer these questions, and similar ones, using natural experiences. The key is to use situations where anecdotal events or policy changes can result in groups of people being treated differently, in a way that resembles clinical trials done in medicine,” explained the academy in the same note.
Using natural experiences, David Card of the University of California “analyzed the effects of minimum wages, immigration and education on the labor market. His studies, from the beginning of the 90’s, challenged conventional wisdoml, leading to new analyzes and insights”.
“The results showed, among other things, that raising the minimum wage does not necessarily lead to fewer jobs. We now know that the incomes of people who were born in a certain country can benefit from new immigration, while people who immigrated previously are at risk of being negatively affected. We also realize that resources in schools are much more important to students’ future success in job market than previously thought”, he detailed.
Still according to the academy, however, “data from a natural experience are difficult to interpret. For example, extending compulsory education by one year to one group of students (but not another) will not affect everyone in that group equally. Some students would have continued to study anyway and, for them, the value of education is often not representative of the whole group. So, is it really possible to draw any conclusions about the effect of an extra year at school?”, he asked.
In the mid-1990s, Joshua Angrist and Guido Imbens, from the Massachusetts Institute of Technology (MIT) and Stanford University, respectively, “resolved this methodological problem, demonstrating how accurate conclusions about cause and effect they can be drawn from natural experiments”, highlighted, finally, the Royal Academy of Sciences of Sweden.
The Nobel Prize for Economics is the last to be announced and will be delivered, like the others, in the next December 10th.
Unlike the other Nobel prizes, the one for Economics was not established in Alfred Nobel’s will, but rather by the Swedish central bank in his memory in 1968, the first winner being selected a year later.