2021 Nobel Prize in Economics: Work in Labour economics & causal relationships rewarded

The Royal Swedish Academy of Sciences awarded the final Nobel Prize of 2021 for Economic Sciences to three US-based economists, David Card, Joshua D Angrist, Guido W Imbens. Also called the Sveriges Riksbank Prize, Card won one half of the prize “for his empirical contributions to labour economics” while Angrist and Imbens won the second half “for their methodological contributions to the analysis of causal relationships.”

David Card’s prize-winning contribution  

All three of the economists bagged the prize for their social experiments that provided “new insights about the labour market and shown what conclusions about cause and effect can be drawn from natural experiments”, said the Nobel Committee. 

Using his decades-long natural experiments, Card's study analysed the labour market effects of minimum wages, immigration and education. According to the results of his study, increasing the minimum wage of workers does not necessarily lead to fewer jobs. Besides, they also showed that new immigration, meaning moving into new territories, can benefit the incomes of people already living there but the immigrants risk being negatively affected. 

Weighing in on the relationship between resources available in schools and the income of students, Card revealed that resources in schools are far more important for students’ future labour market success than was previously thought.

Joshua D Angrist and Guido W Imbens’ contribution

The study by these two economists answered how longer education affect someone’s future income. They proved that extending compulsory education for one group of students for one year, but not for another, will not affect everyone in the groups in the same way. The researchers reached this conclusion through a natural experiment where one group was entitled to participate in a programme while the other group was not. Upon analysing the results, Angrist and  Imbens found that the effect on the income of an additional year of education – which they estimated to be nine per cent – only applies to those people who actually chose to leave school when given the chance. 

Card was born in Canada and is a professor of Economics at the University of California, Berkeley while Angrist and Imbens were born in the US and Netherlands, respectively. While Angrist is a Ford Professor of Economics at Massachusetts Institute of Technology, Cambridge, Imbens is an applied Econometrics Professor and Professor of Economics at Stanford University.

Image: Twitter/@NobelPrize