And the Nobel for Economics Goes To…
Photo by Bengt Nyman from Vaxholm, Sweden, CC BY 2.0
And the Nobel for Economics Goes To…These guys.
Canadian-born David Card of the University of California, Berkeley, was awarded half of the prize for his research on how the minimum wage, immigration and education affect the labor market.
The other half was shared by Joshua Angrist of the Massachusetts Institute of Technology and Dutch-born Guido Imbens of Stanford University for their framework for studying issues that can’t rely on traditional scientific methods.
The Royal Swedish Academy of Sciences said the three “completely reshaped empirical work in the economic sciences.”
Together, they helped rapidly expand the use of “natural experiments,” or studies based on observing real-world data. Such research made economics more applicable to everyday life, provided policymakers with actual evidence on the outcomes of policies, and in time spawned a more popular approach to economics epitomized by the blockbuster bestseller “Freakonomics,” by Stephen Dubner and Steven Levitt.
In a study published in 1993, Card looked at what happened to jobs at Burger King, KFC, Wendy’s and Roy Rogers when New Jersey raised its minimum wage from $4.25 to $5.05, using restaurants in bordering eastern Pennsylvania as the control — or comparison — group. Contrary to previous studies, he and his late research partner Alan Krueger found that an increase in the minimum wage had no effect on the number of employees.
Card and Krueger’s research fundamentally altered economists’ views of such policies. As noted by the Economist magazine, in 1992 a survey of the American Economic Association’s members found that 79% agreed that a minimum wage law increased unemployment among younger and lower-skilled workers. Those views were largely based on traditional economic notions of supply and demand: If you raise the price of something, you get less of it.
No idea who they are, but a couple of things stand out to me.
- The use of natural experiments – or using real world data, and not experimental data from contrived circumstances.
- Figuring out how to isolate and control for cause and effect.
The work mentioned in the AP article regarding minimum wage and immigration is interesting, but of course, what I find fascinating is how they teased out the potential effects of a UBI using lottery winners. The skinny is that a lottery winner who is banking $15K a year is still going to work (or not work) regardless, so the amount of money a UBI would have to pay out before we’d see a negative impact on the labor force is somewhere north of $15K.
Anyway, interesting stuff.
Like a lot of people, I took economics 101, and I learned what basic theory tells us about a number of things. But somewhere along the way, I figured out that the real question is how much of an effect things have, and how that nets out against other things. (An increase in the minimum wage of A results in B lost jobs, but C increase in consumer demand, which results in D new jobs and an improved standard of living for E people. Work out the equation and we’ll talk.) And I also figured out that I don’t know how to math these things up, and that neither do most people who confidently toss around the slogans they learned in economics 101. Good to see the profession giving formal recognition to this reality.Report
IMHO, the trick with minimum wage is two-fold:
1 – the wage needs to fit the local economy (e.g. $15/hr in NYC is nothing, but in BFE WY, it’s too much), so a federal MW is a bad idea, but a federal MW formula is a good idea;
2 – increases need to be spread out a bit, because shocks are a bad thing, but over time, the economy will readily adapt to the changes.
Ergo, tie the MW to inflation and stop worrying about it.Report
That may be right. I don’t have any objection in principle. But someone still has to work out the math.Report
Tie your son to a horse, and then just let’m run. There’s no danger; he’s always going to be on the horse.Report
Not even a remotely good analogy…Report
Not even a remotely understandable one. And what I don’t understand is Pinky, not “conservatives” in general.Report
The problem with indexing the minimum wage to inflation is that the real minimum wage ratchets upwards whenever the political whim strikes but has no realistic way to go back down again in a recession. Inflation provides a safety valve that allows the real minimum wage to be lowered enough for labor markets to clear without the political clusterfish that is trying to lower the minimum wage legislatively.Report
The Fake* Nobel for Economics.
FTFY. 🙂Report
Just ’cause Nobel didn’t think of it at the time…Report
Gonna see if I can come up with enough money to give to the Nobel Foundation to get them to attach their name to a Nobel in cultural studies, though unfortunately I don’t know where we can get Swiss bank money.Report
Just follow Willie Sutton’s advice…Report
The mythology is that the reason there’s no Nobel for mathematics (hence the Abel Prize and Fields Medal) is that Nobel’s wife had an affair with a mathematician :^)Report
I assume she’s been dead for many decades, but if it creates the Nobel in cultural studies…Report
It chafes a bit, I’ll admit.Report
My doubts on UBI are not because it will be economically disruptive per se but because of the people I see advocate for it most ardently and passionately. The UBI advocates are often highly-educated and frustrated artists and academics whose passions and interests hit the hard wall of supply and demand and now find themselves mismatched in jobs that run counter said passions and they hate those jobs. They tend to discuss UBI as if it were a liberating force that will free them from the shackles of day jobs forever. This makes me think that they do not quite get that the B in UBI stands for basic. Instead, they seem to think of it like a perpetual MacArthur grant and just as generous.
The other group that advocates for it tend to be hardcore libertarians who imagine it can replace the entire welfare state and possibly public education and at 15K, it cannot.Report
“My doubts on this theory have more to do with who supports it than with what I think the downsides might be.”
This is an exceptionally good heuristic to use.
But it can just as easily lead to libertarian sympathies instead of technocratic ones.Report
So your doubts on the UBI boil down to “ad hominem”, or some kind of inverse bandwagon fallacy?Report
Saul’s suspicions may be triggered by who supports it, but he does dig down — at least in summary fashion — into what he thinks these supporters misconceive about it and why they so misconceive it, and why it’s a misconception. These are all actual points separate from one’s feelings about the supporters.Report
Is that really substantive, though? If all these frustrated people suddenly awaken one day to the “basic” part of the concept, will that turn them off from the idea? Or cause them to demand it become a ULI (Universal Luxury Income)?
Maybe, but you have to argue that.
But griping about supporters with idealistic ideas doesn’t do much.Report
The baseline I’ve never seen addressed is the U.
Litterally doing your analysis on Lottery winners is to look at NOT-U … combine U and B and I have no idea how it isn’t hoovered up by my Rentier friends as the new baseline for -not having income-
Other than that, I’m totally on board.Report
This is where you can make a kind of grudging defense of the existing systems. There is a benefit to running them (on paper at least) as compelled risk sharing rather than liquid payouts.Report
Yeah, that’s a worry I share, that if everyone has a baseline of $15K, housing costs will just rise to extract it.
UBI isn’t really viable until the housing issues are resolved.
But the lottery question wasn’t about market effects, it was about personal motivations to stay employed.Report
Keep in mind that I used to be involved in theatre. I spent a good portion of my twenties trying for a career in theatre, went to grad school for it, and then looked at my chances of getting a theatre/arts career were not likely and abandoned ship for law school. I did this when I was 28, I am 41 now. I know a lot of people still involved in semi-professional or professional theatre. Almost all of them, except the very lucky and independently wealthy, have day jobs or run a variety of hustles. A good number of them have what are perfectly acceptable office jobs but lots of student debt. Others are stuck doing the stereotypical food services types of jobs (waiter, bartender, etc) as they approach middle-age and I can sense and feel and read their radlcalization.
Will receiving an extra 12K-15K a month help them? No doubt. Will it allow them to quit their day jobs and devote their lives to art? There I have questions and doubts and I suspect they do as well. A lot of the artist types I know do seem to think it will be possible to achieve fully automated space luxury communism to use the phrase from Jacobin. This will eliminate the need not only to be a bartender/server but also allow them to produce art as they conceive it without interference.*
But as discussed on LGM recently, what might be a solution for frustrated artists and adjuncts might not work for industrial labor in the rust belt that defined their self-worth through working hard and just want the factories to come back.
I am seeing my still in theatre friends now agitate and organize for a end to some of the more harder labor conditions that come with paid theatre work. This includes six-day weeks for rehearsal and something called the 10/12. 10 out of 12 means that when actors are called for a 12 hour tech rehearsal/run, they work 10 hours of those 12 (this is in the equity contract). I agree that these suck but the reason they ultimately survive is because the supply for people who want art jobs will always outstrip the demand for paying arts jobs even today. There is a Dutch artists/economist who wrote a book called Why Are Artists Poor? The answer is artists are poor because there are too many of them and there are too many of them because so many are delusional about their chances of making it. Pointing this out does not make one popular.
*When I was in grad school, I remember going to a bar and hearing that one of the bartenders working that night directed at least one music video for the Violent Femmes I believe. He could have done more or that could have been his one professional success. Either way, he was working as a bartender on a at night in middle age and I thought about that and went more towards no thanks.Report
One of my closest friends is in the theater world and I have a whole bunch of acquaintances in it through him. Your description is dead on. Even the people who do fairly well in it never end up coming close to a middle class lifestyle. And there’s always a parade of fresh, recent grads ready to work to the bone for peanuts. My buddy (who has done better than most) is circumspect about it in a ‘this is the price of doing what I love’ sort of way but I get the sense a lot of others are really pissed off. In some ways I sympathize but I’m also always perplexed about what they thought was going to happen.Report
The people I know who seem the most well-adjusted (without needing to be independently wealthy) are those who accepted the logic of “this is the price of doing what I love” and/or have accepted working in the hard to define world of semi-professional/regional theatre which can often also be considered “community theatre” by those who are quite snide about it.
I know people who can afford to be independently employed in the arts because they come from very serious old money, not merely UMC childhoods because mom and dad were doctors. I suspect I know more than let on about this and most people keep it under wraps.Report
I admit to admiring people who do that. Since I was in the position of, “People will pay me handsomely to solve applied math problems that I would do for much less than they are offering.”Report
Yea, I’ve been to enough theater social gatherings to have heard some whispers about trust funds and those who have them. I think my friend who is doing well actually benefited from a middle to lower middle class background. He’s a pretty skilled carpenter which means he always has had work in production that pays a bit better. He’s slowly worked his way from that odd regional theater world into permanent theater department jobs with benefits at academic institutions. No ones dreams are coming true or anything but at least he is where he wants to be every day.
Just yesterday though I saw one of my acquaintances ranting on Facebook about how abused she is. She’s a bit younger (early 30s) and has a husband and a kid. I don’t know her well enough to say anything but if something was going to happen for her it would have by now. She’d probably be better off at this point just getting a 9-5 corporate admin job but she soldiers on.Report
Hardcore libertarians want to replace the welfare state with private charity. The UBI fans are the moderates.
But yes, this is correct. The per-capita value of cash and in-kind benefits for the poor and elderly exceeds the value of typical UBI proposals by quite a bit. Even aside from the question of whether it’s a good idea to cut retiree and means-tested benefits in order to give welfare to lazy college graduates and a huge tax cut to the middle class (already one of the most lightly taxed middle classes in the OECD), it’s a political non-starter. The AARP would go scorched-earth on anyone who voted for it.
This means that the only way we get a UBI is that we get it on top of most of the welfare and entitlement programs we already have, which means it will be much, much more expensive than the status quo, likely increasing federal spending by 10% of GDP.Report
“The per-capita value of cash and in-kind benefits for the poor and elderly exceeds the value of typical UBI proposals by quite a bit.”
I think the idea is that the UBI would be “whatever people could get on welfare now, plus a bit, as straight cash”.Report
UBI supporters can be divided into two groups, based on whether they want to shrink or expand the welfare state.Report
Describe to me a form of UBI that shrinks the “welfare” state.Report
Shrinking by reducing the number of specific cash transfer programs. So no more SNAP, or Section 8, etc. Basically reducing &/or removing as many of the local, state, and federal paternalistic programs as possible by just having a straight forward cash transfer.Report
That’s not going to actually shrink government though. Sure, you are printing one check, but the same agency that currently administers the multiple programs you mention at the state level (and its all state administered) will still do the administering. There will still be verification requirements and probably drug tests (at least in the south), as well as post-hoc financial audits – and nearly all of that administered as it is now by private contractors with a vested interest in keeping their profit margins the same. There will be fewer names to shout about in congressional hearings but don’t for a second think this would shrink government in actual terms.Report
Based on my time in state government, reducing the federal requirements to a single set of qualification standards, and a single set of audit standards, would be an enormous benefit to the states.Report
If we have a federally administered program that sends everyone a check, just because they have a SSN, then we don’t need to administer all the applications and verifications for SNAP, or section 8, or what have you. All those state level agencies can close down, because they won’t be needed (ideally anyway, the reality… ).
So no applications, no drug tests, no verifications, no contractors…Report
In Mississippi we have one state agency administering all those programs. I’ve also lived in Maryland, Washington, Florida and Louisiana, and each had at most two agencies running all those programs. You won’t close a whole bunch, especially since there would be a great hew and cry about not giving money to undocumented people or dead people . . .Report
UBI would not be a state program. Not funded by the states, not run by the states. And ideally, any federal funding for state run programs would be replaced by the UBI.
Which is the point, the states are removed from the equation.Report
remiving the states from the equation would make all the “welfare” that exists now run more smoothly. That hasn’t happened for a variety of reasons and I don’t see it happening even when UBI is implemented, especially if it replaces all these programs. Thats as anti-federalist as it gets.Report
A UBI doesn’t prevent the states from running their own welfare on top of the UBI, it just removes the federal funding of state welfare programs.Report
You could reduce total spending by replacing all existing means-tested and entitlement programs with a small UBI. I’m not saying that this is either a good idea or politically feasible (see my comment four levels up). I’m just saying that it’s a thing that some people endorse.Report
“The UBI advocates are often highly-educated and frustrated artists and academics whose passions and interests hit the hard wall of supply and demand and now find themselves mismatched in jobs that run counter said passions and they hate those jobs. ”
uh
is this one of those “post something that you would absolutely never say as a signal for help” kind of deals, like you’ve been kidnapped and this is your call for assistance?Report
I think there are a few serious limitations with studying lotteries to estimate behavior for UBI. Perhaps the main one is that this lottery was by its structure a twenty-year windfall of equal installments. If they stopped working for twenty years, or even reduced their labor, they could easily jeopardize their pension and social security benefits. So will a given UBI program produce similar long-term risks? If you stop/reduce labor income, will you lose corresponding SS benefits?Report
This was a good choice, Card has been doing great work for years and Natural Experiments are a massively useful innovation in empirical economics.Report
One of the things to remember about their minimum wage experiment: it turned out to be garbage. They collected their data by phoning restaurants. Actual analysis of payrolls showed the opposite.
https://www.wsj.com/articles/natural-experiments-lead-economics-nobel-prize-11633986097Report
Perhaps that’s why I’ve not heard much about that experiment.
That said, realizing you got bad data will hopefully lead you to figuring out how to get better data.Report
“the important thing is that this started a conversation about the issue…”Report
The really important thing is it started the process of economists being expected to look at empirical tests rather than just going off what their theories said.Report
Yes well we shall see if that trend sticks. So far the results are not encouraging.Report
Alan Greenspan, late 2008, sitting in front of Congress.
Every economic model he believed in said that what was happening couldn’t be happening. You could see it in his face. He was a man at sea, trying to make reality fit into the models he liked.
Guy had been pimping ARM’s perhaps six months earlier.
Meanwhile, the New Keynesians were all “Okay, so we predicted this, and you’re still crapping on us? While you make ad hoc justification after ad hoc justification, trying to force things into a model that clearly didn’t work?”
In my head, the Austrians basically label the Great Recession as “AND THEN SOMETHING CRAZY HAPPENED but it’s okay, it’s just a one-off. Probably aliens. Let’s just put in a bit of a IGNORE 2008-2012 into the ole’ model, and go back to feeling smug”Report
This is one of the many reasons I lean Keynesian . . . .Report
New Keynesianism isn’t the Keynesianism you’re thinking of. Rather, it’s a synthesis of the various mainstream schools of macroeconomic thought addressing the shortcomings of Old Keynesianism that had become apparent by the stagflation of the 70s. It’s not really left- or right-wing, just the mainstream consensus model of macroeconomics. Both Paul Krugman and Greg Mankiw (long-time Republican who reregistered as an independent in 2019 to protest Trump and vote against Sanders and Warren) identify as New Keynesians.
I suspect that what you have in mind is a sort of folk Keynesianism in which saving is bad for the economy and consumption is good, so the key to economic growth is redistributing money from people who save a lot (i.e. rich people) to people who are more inclined to spend money as soon as they get it (i.e. the lower and middle classes). This is a misinterpretation of Keynesian thought that no serious economist endorses.Report
Guy had been pimping ARM’s perhaps six months earlier.
The “Greenspan said everyone should use ARMs” narrative comes from three paragraphs in the middle of some remarks he made in February 2004, so it was more like 50-60 months earlier. All he really said was that borrowers would have been better off with ARMs given the history of interest rates up to that point, but not if interest rates had increased, and that ARMs are more popular in other countries, while Americans prefer fixed-rate mortgages. A week later someone asked him if he had meant that people shouldn’t take out fixed-rate mortgages, and he said that he had not intended to give that impression.
You make it sound like he had been shouting from the rooftops for years that everyone should go with ARMs, when it was literally one comment several years earlier cherry-picked out of hundreds and hundreds of pages of speeches he had given during his tenure at the Federal Reserve.
There were, however, people who had been much more aggressively promoting lending to the marginally creditworthy.Report