EVAN DAVIS – October 16th, 2023
Professor David Card is the Class of 1950 Professor of Economics at the University of California, Berkeley. He was the winner of the 2021 Nobel Prize in Economics for his research in labor economics, particularly on the minimum wage.
Davis: What inspired you to study economics, and in particular labor economics?
Card: Well, I’ve told this story many times, but I was originally a physics major. In my second year, my girlfriend at the time was taking economics and she was having some trouble with the formulas. It was a somewhat more technical book, so she asked me to take a look at it and I started thinking “Oh my God, this is very interesting,” and at the same time I was starting to realize that I probably wasn’t going to be a great physicist. So, I said “This looks like a good topic” and I thought it was pretty interesting to study because I didn’t know anything about it.
Davis: What economists and economic thinkers throughout history have influenced you the most? Would you identify with a particular school of economic thought?
Card: The kind of work I do, is what I’d guess you’d call modern labor economics. It was sort of started in the 1950s. The primary person behind it was maybe not someone well known to the public: a man named Gregg Lewis. He was a professor at the University of Chicago and in his later years moved to Duke. He was very important in the field of labor economics, probably most important in it because he was the thesis advisor for many famous economists, including Gary Becker, and Sherwin Rosen, and many, many others, who sort of were the foundational people in the field. And he was very empirically oriented, so he thought that the goal of labor economics should be to try and have quantitative data and understand what’s going on in the labor market. He was probably fairly conservative politically, but his work wasn’t, and it was basically trying to describe and understand using some simple economic models the behavior in the labor market and among people.
Davis: That’s a great transition into the next question. Last year you won the Nobel Prize in economics for your labor economics research. In particular, a lot of your popular work I found was on immigration and the minimum wage. What are your thoughts on the current strike here at Berkeley, and the wages and benefits (or lack thereof) given to the GSIs?
Card: Believe it or not, prior to my work on minimum wages and immigration, which I did when I was in my mid thirties, the first ten years of my work I did on union contracting decisions. So, I actually wrote a number of papers on strikes. I’m not entirely sure this current situation fits the models we were currently thinking of at the time. To some extent, maybe. But, there is kind of a difficult problem facing the university. The university is very strapped for funds. Berkeley tries to compete mostly with rich private universities. Almost all the other major competitors, the people that we try to hire faculty competitively with are Princeton, Harvard, Yale, Stanford, Northwestern. So, those universities have substantially more resources. There’s always a shortage of funds at Berkeley. Anyway, we’ve had a problem for a number of years that our graduate fellowships are too modest. To be competitive, what the students are paid to teach is a relatively small amount of money. It’s only like twenty-something thousand dollars a year, which is not nearly enough to live on in this area. In a lot of departments, they are actually getting quite a bit more than that from the department. Actually, the university has a rule that you’re supposed to get $34,000. All graduate students.
Davis: Really?
Card: Yeah. They currently do. You can’t have a student come onto campus without a guaranteed minimum of $34,000. So, no one talks about that, but actually they’re not getting paid the twenty thousand. They’re getting quite a bit more than that. Now, even the $34,000 isn’t that much in a high cost of living place like Berkeley. But, it’s not entirely clear what’s going to happen if the settlement is reached. I believe the current demand is for something close to fifty thousand.
Davis: For half-time work which would inflate to one hundred thousand for full time work?
Card: Yep. Plus, you get like, whatever else you get, including like, all my free labor [chuckle], working on your projects. That’s much higher than the competition. So, Stanford, all the places like that are probably paying closer to low forties. So, even if they were to completely match the competition, they would probably end up much lower than the current demands. And, I don’t know where they are, but I think that fifty is a little bit off the scale. And, there’s another problem no one really wants to talk about which is in many, many fields these days, there are really no jobs for graduate students once they graduate. So, humanities, a lot of social sciences, the labor market is pretty tough. And even in a lot of the STEM fields, the labor market is pretty tough, like if you graduate in biochemistry, or chemistry, oftentimes you have to work as a postdoc for a few years. And, so one of the groups that wants to get higher wages is postdocs. There’s a really significant problem in all of U.S. higher education, it has nothing to do with Berkeley, that there’s basically way too many PhDs being produced in many fields, strangely enough.
Davis: Would economics be one of those fields?
Card: We have grown enormously, and we’re still doing okay because a lot of our graduates can work outside of higher education. So, our typical PhD class, thirty percent would probably go to the private sector, tech, one way, and another ten to fifteen percent would go to government agencies and international agencies like the World Bank. So, there’s pretty high demand for PhDs in economics. And, the same thing is true in computer science. So, computer science graduates a very large number of PhDs per year, much larger than economics. Very few of those go into academia. Almost all of them go into some kind of private sector. So, there’s just an enormous demand for PhD level work in computer science. But, that’s not true in most other fields. So, there’s kind of a huge imbalance. There’s a small number of fields with a very high demand for PhDs, and a large number with virtually none.
Davis: I suppose that makes sense. So, the ones with high demand for PhDs would be the very high-paying fields?
Card: The relationship between the pay you get in academia and demand is not so clear. In the outside market, yes.
Davis: Gotcha, gotcha. So, I remember that I was familiar with some of your work already the day you won the Nobel Prize. Your work on the minimum wage in conjunction with Professor Alan Krueger led to lively debate on the minimum wage, with a notable challenge coming from UC Irvine Professor David Neumark. What are your general thoughts on Neumark and Wascher’s ongoing work, and their debate with economists such as Professor Dube?
Card: Well, I have never quite understood exactly what all the aspects of this are. When Krueger and I did our work in the 1990s, we wrote a few papers, including one that everybody knows about, about New Jersey and Pennsylvania. And then, we wrote a book. And then, we basically didn’t work on the topic ever again. So, we thought it would be better to try to turn the question over to younger people. Now, my impression is that most of the new research that’s been done in the 30 years since then, has more or less been consistent with our results, and that fears that an increase in the minimum wage or imposition of the minimum wage would lead to massive job losses haven’t really materialized. The most recent example of that, a pretty compelling example of that, was that they never had a minimum wage in Germany until 2015. Ever. And then they introduced one, at €8.50, which was relatively high, especially in lower wage parts of Germany. And, there was a lot of fear that it was going to be devastating to the economy. There were many predictions by economists that this was going to lead to massive job loss, but that didn’t really happen. And luckily, there’s a lot of very good data available from Germany, much better than what is available for the U.S., so we can really closely study this, and quite a few people have worked on it. I don’t think that has really changed Neumark and Wascher’s view because in academia, there’s sort of a rule for people to fight the other side, to take the other side. That’s their rule, I guess. I don’t really understand why, but that’s their rule. Whenever there is discussion about any topic which is the least bit controversial, there will be two sides. And, most of the time, the people running the forum give equal weight to both sides, even if, one side, eighty five to ninety percent of the evidence is on their side, and ten percent is on the other side. The most recent example of this is climate change, there were these climate change deniers that for many, many years were getting equal coverage. Even so, the massive number of people in the field thought that was completely nuts. So, until things go to an extreme consensus, which almost never happens, I mean, there are still climate deniers [chuckle]. Yeah, I don’t know, so, I think in a way, that’s their job. They get out there, and you know, they make a living out of it.
Davis: Understood. And I presume the research from Germany would account for the immediate concern that perhaps the economy was unionized and maybe the minimum wage wasn’t doing much?
Card: Actually, that was the major thing that Krueger and I contributed to in the 1990s and even in the late 1980s. Up until that point, no one had studied the effects of minimum wages on wages. There wasn’t any data available. And, so our first work was really showing that when you raise the minimum wage, some people get a raise. Believe it or not, the standard view, especially in the 1940s and fifties, was suppose there were some workers earning $4 an hour and you raise the minimum wage to $5. Their view would be that all the $4 would lose their jobs. So, no one would get a raise. They’d just be truncated off, everyone who was earning less than minimum wage would just disappear. That was the standard view.
Davis: Right, but wouldn’t that assume an equilibrated market?
Card: It’s actually surprisingly difficult to come up with a model where you don’t get a lot of that. Why is it that you can take somebody who’s earning $4 an hour and raise their wage to $5 an hour? There was previously somebody who was earning like, $5.50, so he used to earn 30% more than this other dude. Now, you push this one guy’s wage up, why don’t we just get rid of that guy and hire the other guys? So, there’s a lot of problems with the standard view of how this works. And that’s been true for 35 years. Gradually, the other thing that’s happened is in the last few years, I’m not sure if it’s really hit the popular media yet, but the view of how the labor market works has really changed quite a bit. And, it’s much more common for economists to now stipulate that firms have some set wages, and have some discretion in the wage that they set, because if they set a slightly lower wage, it’s not like all of their workers would just disappear. Whereas if you’re thinking about the stock market, if Goldman Sachs says they’re going to sell shares at $1 less than anybody else, everybody says “Well, I’m not going to sell my shares to Goldman.” It’s a very different market than the market for pure commodities. The standard economic model is really a model about pure commodities, like things that are sold in the commodities exchange economy. No one models the demand for consumer products that way. So, you drive down the street and you see gas stations, and there will be quite a big dispersion in gas prices, even though gas is a pure commodity. The gasoline is virtually identical at each of these gas stations, although the prices are quite different. So, a better way to think about the labor market is that it’s a version of the gas station problem, but even more so. Because no two workers are exactly the same. But, for a long, long time, if you had said that, you would be thought to be either mentally deficient, or a communist.
Davis: Gotcha. That’s actually a good transition into the next question. What implications do you think your work on the elasticity of labor markets has for neoclassical economic theory? I read in a previous interview that you mentioned economist Joan Robinson’s theory of employer-determined wages. That theory parallels work from economists as unorthodox as Michal Kalecki, who was Marxian-aligned. Do you think your research opens the door for more heterodox schools of economic thought to perhaps take the center stage?
Card: Uh, not really. Actually, Joan Robinson was kind of a leftie too. And one of the reasons, I think, why her research was not as widely accepted by economists was that she was so far out there [chuckle]. Which is pretty weird. She was also not very empirically-oriented. But, I don’t really know that much about what heterodox economics is. I sort of know a little tiny bit about it. It seems to be mostly about macroeconomics. Like, most of the people that work in it are macroeconomists. So, someone like me who works in microeconomics, we don’t really understand macroeconomics very well, and we basically ignore it. It’s an extremely controversial field, people are constantly re-litigating everything. So, evidence is very shaky in the macro area, so people basically change their views [all the time], so yeah. So, I kind of don’t really know about it. I’ve heard that name, Kalecki, but I’m not sure, some Polish guy in England?
Davis: Yes, he was a Post-Keynesian, same as Robinson.
Card: Yeah, but I don’t actually know what a Post-Keynesian is.
Davis: It’s someone who focuses more on Keynes’ work abstracted away from neoclassical economics. For instance, focusing on aggregate demand as the driver of an economy, and the primary force, rather than supply.
Card: Okay. I’m not sure whether that fully makes sense to me.
Davis: A lot of heterodox economists do cite your work from what I’ve seen. I also wanted to ask, several schools of economic thought such as the Austrian school and even certain Post-Keynesians like Shackle and Davidson, they’ve objected to empirical approaches in economics for various reasons, due to uncertainty and the fact that a lot of economic results cannot be replicated across time. Even Professors Samuelson and Nordhaus in their famous 1978 Economics textbook denounce economic experimentation. But, empirical work such as yours and that of behavioral economists is widely revered today, and is definitely growing in the field. What are your thoughts on skeptics of empirical work in economics?
Card: Well, I think people should be concerned about issues like whether empirical research is actually replicable. That’s a very basic concern. I guess, yesterday we found out that the President of Stanford doctored pictures in his papers. That doesn’t necessarily happen in economics, but this kind of thing does happen, apparently. People are concerned that someone has, say they’ve done an empirical project, and there’s inevitably a fair amount of discretion involved in exactly how you do the analysis. Oftentimes, very subtle things like, we were studying a group of patients who were entering the hospital, for example. And you were trying to see whether some procedure matters more or less, or something like that. Then, the big question is, how do you narrow down the sample of people that you’re going to focus on? And, depending on how you do that, you can get different answers sometimes. And sometimes that part isn’t really clear. And, there’s always a concern that somebody who is doing it, they’re making choices all the way along the line, in such a way as to get a set of results. And, nowadays, with modern computers, that’s even easier, because you can have, like, a giant sequence of computer programs all in one big script. And then, you can start at the very top, and say, “Okay, let’s change the way we define the sample, and then let’s take a look at our final tables.” And, push a button, and you can see it. So, the ability to do that makes it possible for people to potentially manipulate the results, so there is always a concern about that. The way, really, it’s overcome, usually, is… so for instance, in the minimum wage literature, Krueger and I did a bunch of papers, so we did a couple things. We made our dataset available. A lot of undergrads practice learning econometrics using our dataset. But, more importantly, other people basically collect similar data in other countries, or other settings, and try and do similar things, or slight variants of it, and see what you get. And see, in economics, you don’t usually pay that much attention to any single paper. So, I would say, for instance, the study that Krueger and I did on New Jersey and Pennsylvania, the only reason it’s important in a way is because, Okay, we did that paper, but then it turned out that, basically, when other people do something similar, they kind of get the same result. If that hadn’t been true, [chuckle] no one would be talking about that paper. So, the paper, per se, sort of started a set of analyses that people would follow through. At this point, there’s ways to analyze all the papers in an area and try and look for evidence that there’s some bias in the reporting. And normally, there is a little bit of such bias but it isn’t that big a deal in a lot of areas. It’s a bigger deal in areas where there’s only a few papers, or where, especially in cases where the data that’s available is not available to other researchers. That’s a very difficult situation.
Davis: Gotcha. I also wanted to transition a little bit into asking about one of your particular research papers, which caught my eye. I read over one of your papers where you found that the Portuguese mandatory draft increased wages for men with lower levels of education. While mandatory national service used to be more popular with neoconservative type Republicans, in recent years the Democratic Party seems to have warmed up to such an idea. For example, in 2019, Democratic presidential candidates John Delaney and Pete Buttigieg supported the idea. Would you recommend that we undertake a similar policy in the United States, assuming the idea garnered proper political support?
Card: [chuckle] Well, no. First of all, I don’t recommend anything usually. I don’t particularly take positions on anything. Mandatory service inevitably means certain people would be disrupted from a different path. There’s some people who believe something like the following. Let’s say, seventy percent (or maybe fifty percent) of people are kind of on a reasonably good path. They graduate high school and go to college. Then, there’s another thirty to forty percent who are kind of like wandering around, and if we put them in national service for a while, that’ll kind of straighten them out. That’s kind of the view, right? So a lot of people who have this view about national service, when you read between the lines, they sort of think that other people need to be straightened out. And I’m always a little skeptical of [the idea] that other people need to be straightened out. That’s a very pervasive idea in political discussions. I would be concerned about that problem. This particular case we were studying was in the context of Portugal in the 1960s. So, they were in a dictatorship for 40 years, under Salazar. And Salazar’s policy was explicitly to keep people poorly educated, except the very, very elite. So, the whole country was extremely poorly educated. And even today, levels of education amount [some] people are quite low. And, it was a huge cost to the country. And, the project came about because of my co-author, Anna, she actually grew up in Africa, because her father was an officer. And they were fighting the war in Angola when she was a kid. And her mother was a teacher. The men would be drafted to go fight in Africa, and they couldn’t read or write. That’s how bad the education system was, for [a while] in Portugal. So, with that, well, there’s a cost to this, if you got injured, that’s a terrible thing, but if you got educated, it was probably good, right? And, towards the end of the draft, they weren’t really fighting anymore. And so, that’s who we studied. We weren’t studying like, going to Vietnam and getting your butt shot off and then getting your GED, and somehow, that’s good. So, I’m not a big believer in military spending as a cure-all for other problems, but I know some people who are. Jerry Brown, the former governor of California, was always kind of on that program. He thought that he was a big believer in more disciplinary-oriented schools, and stuff like that. It’s kind of an old-fashioned Jesuit idea, that other people need to be whacked into shape.
Davis: Understood. And, I just wanted to ask you one last question. So, I saw that you were part of the defense team for Harvard when they were being sued for possible racism against Asian students. What are your thoughts on the current climate with regards to accusations being leveled against universities, on this topic?
Card: Well, in my view, Harvard was litigated because it had an extremely transparent way of evaluating students. If you look at the way other universities do admissions, there’s no records. You can’t really figure out what they’ve done. Somehow, they’re selecting amongst many, many available students, and there was a particular part of the Harvard evaluation which was very controversial, an evaluation which they called ‘personal scores.’ And it turned out that the Asian students were a bit lower, on average, [than other applicants]. My own perception on that was that… that was a bad label for that score. If I’d been in charge, we would’ve changed that in 1950. What it was really trying to evaluate was some kind of combination of leadership and pro-social behavior. And you’ve got to remember at Harvard, there’s a tiny number of students. Almost all of those students have extremely high scores, and have some athletic background, so they’re on some kind of team, and were heavily involved in some kind of either school level or community level organization. And the personal score is sort of based on that third component. Sort of like were you President of the Student Council, and did you run a charity on the side, and are you doing tutoring for math for disadvantaged kids in your neighborhood, that kind of thing. Now, there’s a problem with that, which is of course everybody that wants to get into Harvard then basically volunteers to work at their local hospital and things like that, so there’s a huge number of things on the file that are obviously kind of… we see this everywhere, my wife used to work at a nonprofit in a fairly exclusive neighborhood, and you could see all the really forward-thinking kids who would be volunteering. To get it on your resume! So, you’re really trying to distinguish some way between the true, pro-social people that you really want to have on campus, versus the ones who are filling out all the buckets! That is very difficult. But, that’s what a lot of the idea is.
I don’t think there’s a huge concern about it, to tell you the truth. You know, thirty five percent of the students at Harvard are Asian. So, it’s not like they’re only eight percent of the student body, right? So, they’re well-represented. There was, I believe, historically some evidence of discrimination against Asians, back in the sixties. Just as there had been against Jewish students in the forties and thirties.
I mean, we did a lot of analysis as of my—I was the expert, for Harvard. And, I didn’t think at the end of the day that it was at all what the plaintiffs were arguing. The plaintiffs really want to get rid of affirmative action. They don’t really care about Asians.That dude just wants to get rid of affirmative action. And the Supreme Court is going to just get rid of affirmative action. So, he kind of accomplished his goal. I don’t think that anybody is going to change anything about how Asians really get treated.
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