Nobel winner David Card proves immigrants don’t reduce the wages of native-born workers

October 17, 2021

Applied economists spend a large fraction of their time trying to squeeze meaningful answers — causal effects — out of observational data.

Unlike the natural sciences, we can’t run experiments in order to answer the big questions in our field. If we want to know, for example, how raising the minimum wage affects unemployment, we must rely on real-world data generated by employers and their workers and customers.

But it’s not as easy as simply comparing unemployment rates in two jurisdictions with different minimum wage policies. Minimum wage legislation is a policy choice, and these choices are a function of a range of economic and political forces that also likely explain unemployment rates. That means our ability to learn anything about the effect of minimum wage hikes from a simple “apples and oranges” comparison of this nature is very limited.

Canadian economist David Card received a share of this year’s Nobel prize in economics largely for developing credible methods for teasing causal effects from this type of observational data.

While the native of Guelph, Ont., has written too many high-impact papers to mention here, economists often associate his name with two landmark, highly influential studies, which we all learn in graduate school.

The first, which examines the effect of minimum wages on unemployment, has received much attention in the wake of the Nobel announcement. So let’s focus on the second, in which Card combined a clever technique with data generated by a unique historical event to credibly answer how large-scale immigration from a poor country affects the wages of native-born citizens.

The Mariel Boatlift
Between April and October of 1980, about 125,000 people escaped Cuba from the Port of Mariel, landing as refugees in Miami. What became known as the Mariel Boatlift suddenly and dramatically increased Miami’s local labour force by about seven per cent.

This is a prime example of a “natural experiment,” which social scientists are much better able to recognize and exploit today due in part to Card’s trail-blazing early work.

Though it would be impossible to study the effect of mass immigration on native employment and wages in a true laboratory setting, Card realized that the Mariel Boatlift was the next best thing as the city of Miami experienced an unexpected major immigration shock for reasons that had little, if anything, to do with wages or employment in the community.

Source: The Conversation