The Challenger Finance & Development, March 2016, Vol. 53, No. 1
Peter J. Walker
Peter J. Walker profiles David Card, the economist who has questioned conventional wisdom on minimum wages, immigration, and education
A piece of paper: dog-eared and taped—somewhat haphazardly—to the wall. The makeshift faculty listing at the University of California, Berkeley’s Economics Department symbolizes a humility that flies in the face of its towering academic reputation. One of Berkeley’s economists—also esteemed but modest—is David Card.
Card rose to prominence in 1995 when he won the coveted John Bates Clark Medal, then awarded every two years by the American Economic Association (AEA) to the leading economist under the age of 40 who is working in the United States. It is considered to be the top award in economics barring the Nobel Prize. Through empirical research into a series of “natural experiments”—real-life situations underpinned by robust data—Card challenged conventional economic thinking in several important areas.
Challenging conventionHe found that, unlike in classical models, raising the minimum wage does not necessarily increase unemployment, and even has the potential to reduce it. More than 15 years of research led to a landmark 1993 paper and subsequent book—coauthored with Princeton professor Alan B. Krueger—that analyzed the impact of the minimum wage on the New Jersey fast-food industry. In April 1992, the U.S. state of New Jersey increased the minimum wage from $4.25 to $5.05 an hour, while neighboring Pennsylvania kept it unchanged. It was the ideal natural experiment. Card and Krueger found that, relative to those in Pennsylvania, fast-food restaurants in New Jersey actually increased employment by 13 percent—evidence that the rise in the minimum wage did not have the adverse effect feared by so many.
The study made a lot of noise, but it almost didn’t happen, coauthor Krueger recalls: “Our natural experiment almost didn’t come to pass, as the [New Jersey] state legislature changed and voted to repeal the minimum wage increase before it took effect. The governor vetoed the repeal and had just enough votes to avoid being overridden. . . . In a way,” Krueger notes, “this made our comparison more compelling because the minimum wage increase partly came as a surprise, so employers wouldn’t have fully adjusted to it in advance.”
Another study by Card that also challenged conventional wisdom found that accepting more migrants does not necessarily cost native workers their jobs or lower their wages. Card’s 1989 study on the Mariel Boatlift examined the impact of the sudden arrival of 125,000 Cuban immigrants to the Miami labor market between 1980 and 1985. Many contemporary observers had argued that the influx—representing a 7 percent increase in Miami’s labor force—would harm the job prospects of low-skilled native workers already in the city. But Card found it had virtually no effect on the wages and unemployment rate of low-skilled natives. Even among the Cuban population, wages and employment rates of earlier immigrants were not substantially reduced by the arrival of the Mariels.
On these fronts and others, Card’s research rocked the boat, generating a degree of excitement but also significant skepticism. If Card and his critics could agree on one thing, however, it was that bucking the trend—even if just a little too much—was, at that time, far from a surefire route to mainstream acclaim.
Speaking in his office at Berkeley—a nondescript view outside on a damp and dreary January morning—Card explains that he was on vacation with his wife when he...