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Nobels

3 U.S.-based economists split Nobel Prize for using 'natural experiments' to topple labor market assumptions

The Royal Swedish Academy of Sciences awarded the 2021 Nobel Prize in economics early Monday to three economists in the U.S., David Card At U.C. Berkeley, Joshua D. Angrist at MIT, and Guido W. Imbens at Stanford, for having "provided us with new insights about the labor market and shown what conclusions about cause and effect can be drawn from natural experiments," the Nobel committee said. "Their approach has spread to other fields and revolutionized empirical research."

Card, who was awarded half the prize, studied how labor markets are affected by changes in the minimum wage, immigration, and education. He and his late research partner Alan Krueger studied restaurant labor in New Jersey and eastern Pennsylvania in the 1990s, and found that, contrary to conventional wisdom, raising the minimum wage doesn't necessarily lead to fewer jobs. Card also found that immigration does not lower wages for people born in a country, but may depress pay for people who emigrated to the country at an earlier time.

"Many of the big questions in the social sciences deal with cause and effect," and "these questions are difficult to answer because we have nothing to use as a comparison," the Nobel committee said. Card has "shown that it is possible to answer these and similar questions using natural experiments," but "data from a natural experiment are difficult to interpret." That's where Angrist and Imbens came in. In the mid-1990s, Angrist and Imbens solved the "methodological problem" of evaluating complicated groups of subjects, "demonstrating how precise conclusions about cause and effect can be drawn from natural experiments," the committee said. 

"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," said Peter Fredriksson, chair of the Economic Sciences Prize Committee. "Their research has substantially improved our ability to answer key causal questions, which has been of great benefit to society." Card was born in Canada, Imbens in the Netherlands, and Angrist in Ohio.