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Current Affairs

Labour economics

Date: 14 October 2021 Tags: Honours & Awards

Issue

David Card of University of California at Berkeley, Joshua D Angrist of MIT and Guido W Imbens of Stanford University have won the Nobel Prize in economics.

 

Background

Nobel Prize in economics is known as Sveriges Riksbank Prize in Economic Sciences. It is given in memory of Alfred Nobel.

 

Details

  • The research has tried to answer some of the prevalent questions such as:

  • Does immigration affect salaries and employment levels?

  • Do investments in school education improve the future earnings of students?

  • Will raising minimum wages lead to lower employment levels?

  • The challenge in answering the questions is inability to create a randomised control trial wherein one deprives some kids of school education and provides it to others to ascertain the answer.

  • The researchers identified ways to cut through the often observed correlations and established whether or not they exhibited causality.

 

Study by David Card

  • Card’s study tried to answer the commonly held belief that whether raising minimum wages leads to lower employment.

  • The argument to support is that higher wages will increase costs for the firms and lead to employers hiring fewer people. 

  • The question is whether the phenomenon is observed universally or is it just those two things have been seen to occur on several occasions.

 

The experiment

Card carried out his experiment in on minimum wage in New Jersey. The result showed that increasing the minimum wage does not necessarily lead to fewer jobs.

 

Study about casual relationships

  • The other half of the prize was awarded to researchers for methodological contributions to the analysis of causal relationships.

  • It is crucial because unlike a clinical trial or randomized control trial, in a natural experiment a researcher has no control of the experiment. 

  • The researchers managed to solve this methodological problem by demonstrating how precise conclusions about cause and effect can be drawn from natural experiments.