[Curator's note: The following material quotes and paraphrases extensively from articles posted by the Nobel Prize Committee, the Princeton Alumni Weekly, and The Daily Princetonian; see sources below for details]
The Sveriges Riksbank Prize in Economic Sciences in memory of Alfred Nobel
The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2021 was divided, one half awarded to David Card 83 "for his empirical contributions to labour economics", the other half jointly to Joshua D. Angrist 89 and Guido W. Imbens "for their methodological contributions to the analysis of causal relationships."
The “natural experiment” nature of their work
In their work, the winners used “natural experiments” that resembled clinical trials in medicine, studying how policy changes or chance events result in groups of people being treated differently, the Nobel committee said. For example, Card’s research with the late Princeton professor Alan Krueger showed that increasing the minimum wage does “not necessarily lead to fewer jobs.” The methodological contributions by Angrist and Imbens have made it easier to interpret data from natural experiments.
“Card’s studies of core questions for society and Angrist and Imbens’ methodological contributions have shown that natural experiments are a rich source of knowledge. Their research has substantially improved our ability to answer key causal questions, which has been of great benefit to society,” said Peter Fredriksson, chair of the Economic Sciences Prize Committee.
David Card *83: Early life and academic career
David Card was born in Guelph, Ontario, Canada on November 30, 1955. His parents were dairy farmers. Card earned his Bachelor of Arts degree from Queen’s University in 1978 and his Ph.D. degree in Economics in 1983 from Princeton University, after completing a doctoral dissertation, titled "Indexation in long term labor contracts", under the supervision of Orley Ashenfelter.
Card began his career at the University of Chicago Graduate School of Business, where he was Assistant Professor of Business Economics for two years. He was on the faculty at Princeton University from 1983 to 1996, before moving to Berkeley; from 1990 to 1991 he served as a visiting professor at Columbia University. From 1988 to 1992, Card was Associate Editor of the Journal of Labor Economics and from 1993 to 1997, he was co-editor of Econometrica. From 2002 to 2005, he was co-editor of The American Economic Review.
Academic work at Princeton
In the early 1990s, Card received much attention for his finding, together with his then Princeton University colleague Alan B. Krueger that, contrary to widely accepted beliefs among economists, the minimum wage increase in New Jersey did not result in job reduction of fast food companies in that state. While the methodology and its claim have been disputed, later studies of minimum wage increases have tended to confirm Card and Krueger's findings, and many economists, including Joseph Stiglitz and Paul Krugman accept these findings.
David Card also made contributions to research on immigration, education, job training and inequality. Much of Card's work centers on a comparison between the United States and Canada in various situations. On immigration, Card's research showed that the economic impact of new immigrants is minimal. Card has done several case studies on the rapid assimilation of immigrant groups, finding that they have little or no impact on wages. For example, Card studied the economic impacts of the Mariel boatlift, and compared the economic effects in Miami to those in Atlanta, Houston, Los Angeles and Tampa, which receive fewer Cuban immigrants.
Card found that despite the drastic increase in low-skilled labor in Miami by 7%, wages for the low-skilled workers were not significantly affected. Furthermore, he found that overall unemployment rates and wages for the labor market as a whole in Miami were unchanged by the sudden influx of immigrants. In an interview with The New York Times, Card said, "I honestly think the economic arguments [against immigration] are second order. They are almost irrelevant.” This does not imply, however, that Card believes immigration should be increased, merely that immigrants do not pose a threat to the labor market.
Despite the fact that Card sometimes researched issues with strong political implications, he does not publicly take a stand on political issues or make policy suggestions. Nevertheless, his work is regularly cited in support of increased immigration and minimum wage legislation.
Joshua Angrist *89: Early life and academic career
Angrist was born to a Jewish family in Columbus, Ohio on September 18, 1960 and raised in Pittsburgh, Pennsylvania, where he graduated from Taylor Allderdice High School in 1977. Angrist received his B.A. in economics from Oberlin College in 1982. He lived in Israel from 1982 until 1985 and served as a paratrooper in the Israeli Defence Forces.
Angrist received a M.A. and a Ph.D. in economics from Princeton University in 1987 and 1989, respectively. His doctoral dissertation, Econometric Analysis of the Vietnam Era Draft Lottery, was supervised by Orley Ashenfelter and later published in parts in the American Economic Review.
After completing his Ph.D., Angrist joined Harvard University as an assistant professor until 1991, when he returned to Israel as a senior lecturer (equivalent to an Assistant Professor in the US system) at the Hebrew University. After being promoted to associate professor at Hebrew University, he joined MIT’s Economics Department in 1996 as associate professor, before being raised to full professor in 1998. He additionally served as the Wesley Clair Mitchell Visiting Professor at Columbia University in 2018.
Research in labor, urban and education economics
Angrist's research interests include the economics of education and school reform, social programs and the labor market, the effects of immigration, labor market regulation and institutions, and econometric methods for program and policy evaluation. He ranks among the top 50 out of over 56,000 economists registered on IDEAS/RePEc in terms of research output.
He ranks among the world's top economists in labor economics, urban economics and the economics of education and is known for his use of quasi-experimental research designs (such as instrumental variables) to study the effects of public policies and changes in economic or social circumstances. He is a co-founder and co-director of the MIT's School of Effectiveness & Inequality Initiative, which studies the relationship between human capital and income inequality in the U.S.
Angrist is affiliated with the National Bureau of Economic Research, the IZA Institute of Labor Economics, the American Economic Association, American Statistical Association, Econometric Society, Population Association of American and the Society of Labor Economists. He has performed editorial duties at journals including: Econometrica, American Economic Review, American Economic Journal: Applied Economics, Journal of Business and Economic Statistics, Economics Letters, Labour Economics and the Journal of Labor Economics.
Industrial Relations Section: Firestone Library’s role
“I’m not sure where the profession would be now without Card and Angrist. The American Economics Association publishes an entire journal, AEJ: Applied Economics, that is filled almost exclusively with the sort of empirical work that they pioneered,” says Michael R. Ransom *83, an economist at Brigham Young University. Perhaps even more important, their work and work by other Princeton economists have attracted widespread attention outside economic journals and fueled policy changes at both the local and national levels.
The latest Nobel Prizes for economics were forged in an out-of-the-way nook in Firestone Library, an enclave that was home to a tight-knit group of Princeton economists known as the Industrial Relations Section. Collectively, members of the section have moved smoothly between the worlds of academia and government, providing guidance on what policies should be implemented to improve outcomes for the economy and for individuals.
The IR Section “really transformed the way we think of empirical evidence,” says Lawrence Katz, a Harvard University economist who worked closely with both Card and Krueger. It made the study of economics “much more transparent and clear, which made it more policy-relevant and more rigorous,” Katz says.
The section was created in 1922 with financial support from John D. Rockefeller Jr. Labor unions had grown stronger during World War I, but when the war ended, the labor-management relationship grew tumultuous, and unions quickly lost ground. During the Great Depression, Princeton’s young IR Section saw itself as serving both company executives and union leaders (though companies used its work far more frequently than unions, PAW reported), disseminating reports on such subjects as “labor capitalism,” pensions, the five-day work week, and “age limitations” of workers. Later, under such figures as Albert Rees and future University president William G. Bowen *58, the section began to experiment with new approaches, most notably rigorous data techniques.
Card recalls that the hothouse atmosphere of the IR Section — in Firestone, physically separated from the rest of the economics department — enabled innovative approaches to flourish. Graduate students worked side by side with senior faculty — an unusual arrangement at the time, says Card. (Card even met his wife at the section’s home in Firestone: Cynthia Gessele *89 had a part-time job typing for the economists. Her secret to getting the job? “Not many people could type math notations,” he says.)
The section’s physical setup was so important that when it moved to the Louis A. Simpson International Building in 2017, officials included a long counter with a coffee maker where faculty and students could bat around ideas. In a tour of the space, economics and public affairs professor David S. Lee *99 points out the setting, noting that it continues to host offhanded “counter talk” among the members.
“Almost any topic was fair game — thoughts about a question one of us was attempting to address, an issue in a paper, just ‘blue-skying it’ as we thought about the latest news, or what we were going to have for dinner,” says economist Cecilia Rouse, the former dean of Princeton’s School of Public and International Affairs, who is on leave from Princeton to chair the White House Council of Economic Advisers (she spoke to PAW in her personal capacity). “Those unstructured moments often led to new ideas, and the section had the resources to allow us to pursue many of them.” Sometimes so much time would pass in discussion that IR Section members would get stuck in the library when Firestone locked its doors for the night.
“It was an intimate setting,” recalls Lee. “The offices of faculty and students were right next to each other, with a common area, like a dorm. As a student, many of the things I learned came from just hanging out around the coffee machine and listening to David, Alan, and Orley talk.”
“Orley” is Princeton professor Orley Ashenfelter *70. Now 79, Ashenfelter has been a presence in the IR Section off and on since the 1960s, helping to lead its transition from focusing on old-fashioned company-union mediation into cutting-edge econometrics. Ashenfelter was “one of the very first economists to try to make estimates of economic effects more credible and defensible” by moving beyond theory and using quantifiable data, says Gary Burtless, an economist with the Brookings Institution.
James Heckman *71 recalls that the first time he met Ashenfelter — when Ashenfelter was a graduate student and Heckman was considering working toward a Princeton graduate degree himself — they spent the whole night arguing, ending only after the sun was up.
Ashenfelter loves direct intellectual combat, says Heckman, a University of Chicago economist and a Nobel laureate. “I still think of it today,” he says. “A lot of my thinking came from those interactions.”
The late 1960s and 1970s were an exciting time for labor economists, as federal officials tried to deal with rising inflation and other economic tribulations by implementing innovative policies. Economists were needed to test the real-life effects of these policies — but few academic departments were well-prepared to do that. As late as the 1970s, academic industrial-relations departments “were strongly opposed to measurement, even of the simplest kinds,” Heckman says. “The study of labor supply was the province of sociologists, they believed.” Theories prevailed over quantitative studies. The younger economists coming to Princeton rejected this approach as outdated, however, and, led by Ashenfelter, they became active in launching a quantitative economics that turned hard data into models.
The gold standard for academic experiments is the “randomized controlled trial,” in which researchers randomly assign test subjects into one of two groups — one group that receives the “intervention” they’re trying to study, and a control group that does not. But in economics, a randomized controlled trial is not always feasible. “Natural experiments” were the next best thing, allowing researchers to mimic a random controlled trial using data that came from a fortunate accident of history.
One day, when Angrist was a graduate student, his professor, Ashenfelter, mentioned the long-term health effects of being drafted into the military. Epidemiologists “had done this very clever thing where they used the fact that draft lottery numbers were randomly assigned,” Angrist recalled in an interview with the Federal Reserve Bank of Richmond in 2020, “and they compared people who had high and low numbers to test the causal effects.” Ashenfelter suggested that someone could use lottery data to study the earnings of men who had been drafted compared to those who had not. When the class ended, Angrist went to the library to get started on the project. It became his Princeton dissertation.
Today, natural experiments are standard in economics, says Lee — in fact, generations of scholars take this for granted. The impact of the early Princeton researchers has been multiplied through their students and their students’ students. Card, for example, was one of Angrist’s dissertation advisers and also advised other prominent Princeton economists. Economics professor and Nobel laureate Angus Deaton recalls introducing Card to an audience of perhaps 1,000 economists and asking how many had been one of his students. “There was a forest of arms,” he says.
The studies by these economists deal with questions affecting the lives of ordinary Americans, like wages and education, and so frequently wind up in news reports and policy discussions, not just professional economics journals. For example, Card and Krueger’s conclusion that raising the minimum wage did not harm employment echoed what had been found in several previous papers, but the simplicity of its findings helped attract widespread attention among policymakers and the general public. (“The paper is four numbers — before and after employment in New Jersey, and before and after employment in Pennsylvania,” Ashenfelter notes.) As expected, that study attracted some criticism, says Janet Currie *88, who now chairs Princeton’s economics department, but “over time, more and more people accepted the finding.” And while the paper did not lead Congress to raise the federal minimum wage, it helped convince states and localities to increase theirs.
Other natural experiments flowed from the IR Section. A 1991 paper by Angrist and Krueger explored how much of an economic return comes from spending additional time in school. To study this, Angrist and Krueger focused on the quarter of the year in which someone was born. People born in the first quarter would start school when they were older, so they would reach the minimum age to legally drop out sooner than slightly younger peers. In other words, through the accident of birth, students born earlier in the year would be able to leave school earlier, with less education. The researchers concluded that extra schooling did, in fact, lead to extra earnings later. Yale economist Joseph Altonji *81 says the work has been “a key part of the case for investment in education.”
Card and Krueger, meanwhile, looked at affirmative-action policies in higher education, using data from California and Texas both before and after those states eliminated preferences in college applications. Minority-student acceptance rates at selective state universities fell, they concluded, but application rates did not, suggesting that highly qualified minority students were not dissuaded from applying to elite public schools either because of reduced campus diversity or because of uncertainty about their admission prospects.
Princeton’s IR researchers have long had ties to government. Heckman recalls that when he was a graduate student in the group, one of the professors mused about having advised President Herbert Hoover. The link grew tighter in the 1960s and 1970s. Scholars in the group undertook several efforts to study a proposal for a version of negative income tax — a guaranteed income — by President Richard Nixon. (Their findings were mixed.) In time, the researchers would explore many other public-policy questions, including the effectiveness of government-subsidized worker-training programs, whether expanding Medicaid reduced labor supply, and whether the 1980 Mariel boatlift, which brought Cuban migrants to Miami, affected wages in that city (the study found almost no effect on wages or unemployment rates).
One seemingly humdrum yet crucial development was the emergence under presidents Lyndon Johnson and Nixon of new streams of federal statistical data. Data collected from programs that were part of Johnson’s War on Poverty greatly increased the granular material available to researchers who were interested in conducting natural experiments. And government officials welcomed academics to play a role. “There was an optimism that informed scientific research could actually help alleviate poverty or racial or gender wage differences,” Card recalls. “It was an optimistic time, where you felt you could potentially have an impact on things that were relevant for people’s lives.” Some of the IR economists have served in the White House, including Rouse, who worked at the National Economic Council during the Clinton administration, served on the Council of Economic Advisers for President Barack Obama, and has been Biden’s top economic adviser since the start of his presidency.
Not all economists have the stomach for working inside the government, however. Winning a Nobel Prize is one thing. But policymaking? “To get things changed is a huge process of advocacy and bending wills,” says Card. “It’s not something I feel I have much ability to do.”