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October 11, 2021 03:17 PM

3 share Nobel economics prize for work using natural experiments

James Comtois
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    Nobel Prize Winners
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    The winners of the 2021 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (L-R) David Card from the University of California, Berkeley, USA, Joshua D. Angrist from the Massachusetts Institute of Technology, Cambridge, USA and Guido W. Imbens from the Stanford University, USA, are seen on a screen during a press conference at the Royal Swedish Academy of Sciences in Stockholm, Sweden, on October 11, 2021.

    University of California, Berkeley, professor David Card was awarded one half of the 2021 Nobel Memorial Prize in Economic Sciences "for his empirical contributions to labor economics," while Massachusetts Institute of Technology professor Joshua D. Angrist and Stanford University professor Guido W. Imbens were jointly awarded the other half "for their methodological contributions to the analysis of causal relationships," the Royal Swedish Academy of Sciences said in a news release.

    "This year's laureates ... have provided us with new insights about the labor market and shown what conclusions about cause and effect can be drawn from natural experiments," the academy said Monday in the news release. "Their approach has spread to other fields and revolutionized empirical research."

    Bruce I. Jacobs, principal at Jacobs Levy Equity Management, said in an email that this year's recipients "were recognized for their innovative use of natural experiments to study difficult-to-answer questions about cause and effect in the economic realm."

    "Questions such as how changes in the minimum wage affect employment levels and whether additional schooling increases income cannot easily be answered through randomized experiments, such as in medicine where some clinical trial participants receive an experimental medication and others get a placebo," Mr. Jacobs said. "Instead, Card, and separately, Angrist and Imbens, searched for situations in which chance events and changes in institutional rules and policies create groups of people who are treated differently, setting up what amounts to natural clinical trials."

    Mr. Card used natural experiments to study the effects of changes in minimum wages, immigration, and education on the labor market. In a study Mr. Card had done with the late Alan B. Kreuger comparing New Jersey's labor markets, which raised its minimum wage in the early 1990s, to those of neighboring eastern Pennsylvania's, which had left its minimum wage unchanged, Messrs. Card and Kreuger had discovered that "the cost of paying higher wages in New Jersey did not reduce the level of employment in the fast-food industry there," according to Mr. Jacobs.

    In another study, Mr. Card examined how Cuban immigration to Miami impacted wages and employment in the city. "Comparing Miami to similar cities, he found no significant negative effects on low-wage income or employment," Mr. Jacobs said.

    "My contributions are pretty modest," said Mr. Card in a news release issued by UC Berkeley. "It's about trying to get more scientific tie-in and evidence-based analysis in economics."

    Added Mr. Card: "Most old-fashioned economists are very theoretical, but these days, a large fraction of economics is really very nuts-and-bolts, looking at subjects like education or health, or at the effects of immigration or the effects of wage policies. These are really very, very simple things. So, my big contribution was to oversimplify the field."

    In 1994, Messrs. Angrist and Imbens wrote a paper that formalized "the idea that the average effect of something — be it a new government policy, wage increase, military service or educational attainment — is best measured by its impact on people who normally never would have experienced it," said a news release from MIT.

    Messrs. Angrist's and Imbens' "framework for analyzing natural experiments, which has been widely adopted, showed more precisely what conclusions about cause and effect can be drawn in situations where the researcher has no control over who takes part and where the impact varies among individuals," Mr. Jacobs said.

    Mr. Angrist said in the news release issued by MIT that he was "overwhelmed," and felt "especially lucky to be sharing this honor with David Card and Guido Imbens."

    "I think it's great recognition for empirical economics," Mr. Angrist added. "I think this is further evidence that economics has matured greatly as an empirical discipline. Our work has become better, more convincing, and more relevant, in policy discussions and to families making decisions."

    Meanwhile, Mr. Imbens said in a news release issued by Stanford that he and Mr. Angrist "were talking about ideas and thinking about open questions and it's just kind of amazing to think that that work just very directly … it's essentially where we figured out the main ideas that are the basis for this prize."

    "I was absolutely stunned to get a telephone call," Mr. Imbens added. "I was absolutely thrilled to hear the news, in particular hearing that I got to share this with Josh Angrist and David Card, who are both very good friends of mine."

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