‘If Minimum Wage Is like the Average Wage, Raising it Would Be Bad for Jobs’: David Card

The 2021 Nobel Prize in Economics Science winner spoke with Bloomberg Línea, from personal experiences to labor economics issues.

David Card, economist and Nobel Economist Prize winner
November 02, 2021 | 09:50 AM

Bogota, Colombia — “I thought it was an old friend of mine playing a joke on me,” David Card begins by telling Bloomberg Línea about what that first impression was like when he learned he was one of the winners of the 2021 Nobel Prize in Economics.

“I came home late and was taking a shower when my wife said oh! there’s a weird message on the answering machine and she said, someone from Sweden, but we thought it was a friend in Canada. So yes, I didn’t think there was much chance of winning a Nobel Prize”, Card continues to tell, still with some skepticism in his expressions as if it were still difficult for him to assimilate that yes, he will have to add such high recognition to his resume.

On October 11th the story of the 65 years old Canadian economist and professor at the University of California at Berkeley, David Card, was divided into two: going from shining in academia to world recognition that deserves a Nobel prize.

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That Monday it was announced that Card would share the Nobel Prize in Economic Sciences with the American Joshua Angrist and the Dutchman Guido Imbens for their work that uses experiments based on real-life situations to revolutionize empirical research. Card was awarded the prize for his contribution to the labor economics, while the other two colleagues received jointly the other half award for “their methodological contributions to the analysis of causal relationships.”

Card analyzed the impact of minimum wage increases on employment in the state of New Jersey, in the United States. His findings indicate that such increases had no significant impacts on declines in employment, contrasting with what many experts have considered for many years. However, this could vary depending on the case and the context.

In the midst of the easiness that virtuality offers today, Card tells Bloomberg Línea how he ended up being interested in studying labor economics and not other branches of this science. His interest arose after facing difficult working conditions in his first jobs as a young man.

I got interested in labor economics because I grew up in a farm, a small farm, and I worked a lot of menial jobs when I was a kid. I worked in a steel mill and worked on other farms.

David Card

“Trying to improve opportunities for people with lower salaries, like basically those in my family, I found the subject interesting and thought it was something I would like to study”, he adds.

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But that wasn’t all, the Nobel laureate opened up and said that “today I don’t understand taxes and I’m not very interested in finance. So the part of economics that interests me is more related to people than to abstract monetary policy or something like that. I just don’t understand those things very much.”


Questions to the Nobel

In Latin America in countries like Colombia, the minimum wage is 90% of the median wage, do you think in these cases raising the minimum wage can impact the employment? Or what variables are necessary to consider before raising the minimum wage?

If there’s a very large number of workers who earn exactly the minimum and employers just go out and hire workers at the minimum wage, then it’s a somewhat different economic situation, and you would expect in those settings that that rise in the minimum wage would have some negative employment effects.

That’s not the setting that’s prevailing in most of the United States, where almost everybody earns quite a bit more than the minimum wage. There are some interesting studies in Brazil that I would refer you to (...) And those studies haven’t found huge employment effects of the minimum wage in Brazil. But you know, it sounds like Colombia’s minimum is even higher than the Brazilian one, possibly equivalent to the Brazilian one, and some of the poorer parts of Brazil, the Northeast, or whatever. So I don’t know, I think it’s a really important question when the minimum is that high.


In Latin America there are high levels of labor informality and low productivity, how can these countries make the labor market more productive and formal?

There’s a lot of interest in that question. One problem you have when formality was introduced in the United States or Canada, where I grew up back in the 1930s, that was where we first had the tax system for Social Security and so on. The taxes were very low. They were only a couple of percent. So the cost of formality was pretty small. You basically just paid a little bit of taxes, and it wasn’t a huge deal (...) Nowadays some countries are trying to get formality. But the increased formality with the tax rate is really high. It might be quite a wedge between what the employer has to pay and what the worker would get that goes into the tax system.

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And so it’s not surprising. It’s difficult to push formality,especially into lower productivity sectors, as you say, like agriculture or some of the smaller craft industries. And I would suspect that there are programs, and I know Brazil had a program to try and incentivize formality by offering like a deal to the company that if you become formal, you don’t have such a huge tax burden. I suspect that those kind of programs would be the kind of way to go.


Does the skill-biased technical change become a driving force for the labor market divergence among different countries? In case it does, through which channels is it affecting them? How to reduce the impact of this driving force in the labor market?

Well, technological change is always going on and the way that it is affecting labor markets does change from time to time. These days, people think in the most advanced economies that the technological change is probably reducing the demand for middle skilled workers, more than low skilled workers.

If there’s a shortage of one kind of worker, then technology can adjust and say, OK, we’re going to make inventions and try and find a way to take care of that problem, and you see that clearly if you go to Japan. They don’t have any young workers and very few low skilled workers. There are lots and lots of very old workers. And so there’s a lot of really interesting innovations there to take the place of home health care workers, all kinds of things that older people can use and bring to their house to help them. Whereas, in a country like Colombia, you would just hire somebody to come and live in your house and take care of you. So what kind of technology you get? New innovations are actually determined by incentives, economic incentives, just like everything else. And if there are big incentives to reduce the use of low skill labor, then we’ll will get innovations in that direction.

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But right now, I think big, big incentives are to reduce office workers, people that take care of, or used to take care of planning. That’s what artificial intelligence does. Artificial intelligence is a set of algorithmic decision making processes that say, OK, you don’t have to order stuff for your warehouse, we’ve got a computer program that will do it for you and that replaces people that used to earn kind of in the middle of the income distribution.

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In Latin America, young people and women were the most impacted by the crisis, but it really is because of a structural problem, what can be the best ways to increase the employment rate in this segment of the population?

Well, I think there’s a combination of things you need to get a very stable business environment so that employers are willing to invest and you need to have workers that are able to work on a consistent basis so that their employers want to hire them. And if you have, then you need to have like arrangements that they’re able to do something that is valuable, as an export, for instance, in the case of Colombia.

So that’s pretty important. And so you need a combination and you need the government to provide health care and benefits and some kind of unemployment insurance and things like that. So you need a combination of things that make an economy, a local economy, an attractive investment and a place where people can successfully use the workers. And hopefully use them very effectively to create something that’s competitive in the world economy and everybody is trying to do that.

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But there are so many obstacles, like in the case of Colombia, you had all the difficulties of the war for many years, which basically disrupted half the economy. Then you’ve got political turmoil. You know, sometimes people are unsure if the political system is going to persist or if there’s going to be some kind of problem for


Right. Well, there’s a I think there’s a combination of things you need to geta very stable business environment so that employers are willing to investand you need to have workers that are able to work on a consistent basis sothat their employers want to hire them. And if you have, then you need tohave like arrangements that they’re able to do something that is valuable,you know, as an export, for instance, in the case of Colombia. So that’spretty important. And so you need a combination and you need thegovernment to provide health care and benefits in some kind ofunemployment insurance and things like that. So you kind of need acombination of things that make an economy, a local economy, an attractiveinvestment and a place where people can successfully use the workers. And,you know, hopefully use them very effectively to create something that’s competitive in the world economy and everybody is trying to do that. Butthere’s so many obstacles, you know, like in the case of Colombia, you hadall the difficulties of the war for many years, which basically disrupted halfthe half the economy. And so getting recovery from that, then you’ve gotpolitical turmoil. You know, sometimes people are unsure if the politicalsystem is going to persist or if there’s going to be some kind of problem forcertain groups of investors. A lot of times there’s uncertainty about whetherthey’re going to have a stable currency or whether they’re going to, youknow, Argentina has had some trouble with that. So you get it. You know, inthe case of Argentina, you’re never sure whether there’s going to be a biginflation and somebody’s going to start messing around with bank accounts.So you need to have all of that thing kind of straightened out. Otherwiseinvestors won’t put down the investment. And but if you look at a country,you know, some countries have done really well with a program of trying toget create an environment where there’s business friendly, but also good forworkers.6. How does the labor market adapt to immigration flows?Well, OK, so the first point is that more people. Isn’t necessarily a problem inan economy, but larger economies, larger cities don’t have lower wages. So,so just because you have more people, that’s not necessarily a problem, butwhen if you’ve got more people, you need to have more investment. You’vegot to have more businesses, more roads, more schools, more hospitals. Andso there’s an adjustment cost to dealing with that. But usually most peopleagree that more people is probably better. So larger cities have higherwages. Larger countries like Canada are always trying to increase populationbecause they believe they’re a bit too small. So there is there is a generalpoint in economics. The larger is bigger is better, not necessarily too muchbetter, but somewhat better. But then on top of that, then there’s a problemof how what are all the costs and disruptions of the immigration when theyfirst show up? So for instance, you have in Europe the situation of all the

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6. How does the labor market adapt to immigration flows?

Well, OK, so the first point is that more people. Isn’t necessarily a problem inan economy, but larger economies, larger cities don’t have lower wages. So,so just because you have more people, that’s not necessarily a problem, butwhen if you’ve got more people, you need to have more investment. You’vegot to have more businesses, more roads, more schools, more hospitals. Andso there’s an adjustment cost to dealing with that. But usually most peopleagree that more people is probably better. So larger cities have higherwages. Larger countries like Canada are always trying to increase populationbecause they believe they’re a bit too small. So there is there is a generalpoint in economics. The larger is bigger is better, not necessarily too muchbetter, but somewhat better. But then on top of that, then there’s a problemof how what are all the costs and disruptions of the immigration when theyfirst show up? So for instance, you have in Europe the situation of all themigrants that came as a result of the Syrian war. And strangely enough, withmany countries did, they didn’t let them work. So they bring them in. Theydon’t let them work. They don’t give them work permits. So then you’ve gota problem. So if you want to have if you’re going to have immigrants andyou’re going to get them adapted, you’ve got to have flexibility in the labormarket. You’ve got to say, OK, these people are going to need some help.Luckily, in the case of the Venezuelans in Colombia, at least they speak thesame language, and that was the same thing in the Mariel boatlift. TheMariel ethos came they were, you know, the Cubans, but there were lots ofCubans in Miami and you can get you can do pretty well in Miami if you

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Moving on to other issues, how do you think the labor market is adapting to immigration flows?

The first point is that more people is not necessarily a problem in an economy, only that if you need to have more investment, more businesses, more roads, more schools, more hospitals, to mention a few examples. And that has a cost. Also, if you accept immigrants, you want to have them and accommodate them there has to be flexibility in the labor market, which in most cases there isn’t and that’s a big obstacle that people face. I suspect that many of the Venezuelans who are coming to Colombia are relatively well educated and could find work, but it is going to take a while.

In Latin America there are high unemployment rates, what are the keys to reducing unemployment in a region like this?

There are several types of unemployment, what economists call structural unemployment is where there are many people who cannot find any kind of job consistently. And the causes of that are many and different. One of them is that there are not enough companies willing to invest in the area and create jobs. So the question is why, why companies are not investing here, they are investing in some places, but not here. Why, is there some kind of obstacle?

How important is training for the job, for the labor market and to make it more dynamic?

Fundamental, that’s almost always the number one thing that economies can drive to improve in the long run. My old colleague Alan Krueger wrote a pretty important study on this many years ago, showing that it seems that if you put the data together, there is a huge benefit from increasing education.

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Every economy competes partly with itself and partly with other economies. And so better educated labor is always a benefit, more adaptable to using new, simpler technologies for, for example, tourism. For tourism you need a labor force with some education, because basically you have to have language skills and then there are all the logistics involved in tourism. So even a simple industry like tourism depends to some extent on the educational capacity of its workers.

How can the income gap between men and women be reduced?

I think there are several obstacles. One is that women tend to have preferences of wanting to work in teaching and health care and things like that, jobs that are important and socially relevant, but that tend to be jobs that a lot of people would like to do, and as a result, the wages are a little bit lower. In and of itself, they’re already entering the labor market at a disadvantage.

A second problem is that they are discouraged from moving more into science and engineering fields where there are opportunities for growth and better benefits. Another problem is that there are some employers who I don’t know exactly why, but they seem to be reluctant to hire women, so breaking down those barriers would make some difference.

And then there’s a big problem with what happens when you have a child. In a lot of economies women have to take time off, plus maybe they have difficulty finding childcare, or maybe they want to spend some time at home for a few years while their child is young and it takes them out of the career and then it’s hard to pick it up again.

There are certain jobs that are much friendlier to women, such as being a part-time healthcare worker earning about the same as full-time healthcare workers. Many professions are better suited to part-time work, teaching and nursing, and all health professions are like that. And a good question is, could we make other jobs like that, like my academic profession? In most cases part-time work (on these categories) is not allowed, ergo hurting women. We could probably change it and say, okay, let’s be like doctors where you can work part-time and you’ll still be valuable. But there’s a lot of reluctance to do that. There’s a lot of unfinished business.

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