Paul Romer, novi glavni ekonomist Svetovne banke, je z dvema izjemno ostrima kritikama odprl Pandorino skrinjico problema intelektualne poštenosti med akademskimi ekonomisti. Lani je v Mathiness nekdanjega mentorja, nobelovca Roberta Lucasa in naslednike, ki so izvršili kontrarevolucijo v makroekonomiji po letu 1975 in jo zapeljali v slepo ulico, obtožil, da z ekscesivno matematiko zavajajo in v matematiko ovijajo svoja ideološka prepričanja). Pred mesecem pa je v preglednem članku o razvoju makroekonomije v zadnjih desetletjih (The Trouble With Macroeconomics) Lucasa in naslednike obtožil še neznanstvenega in intelektualno nepoštenega pristopa k raziskovanju. Namreč, da oblikujejo formalne teoretske modele, ki so že na prvi pogled v nasprotju z empiričnimi dejstvi in katerih veljavnosti kasneje z empiričnimi raziskavami ni mogoče potrditi.
No, Romer je v tem zadnjem članku napisal tudi, da je že pred časom zapustil akademsko sceno in da mu je vseeno, če mu še kdaj objavijo kak znanstveni članek ali ne. Pri tem je mislil na to, da obstajajo akademski lobiji istomišljenikov, ki v top akademskih revijah blokirajo objave drugače mislečih ali alternativne poglede – torej tiste, ki so izven neoklasičnega ali neokeynesianskega mainstreama. Podobno izkušnjo ima David Card iz Berkeleya (dobitnik prestižne nagrade John Bates Clark Medal za najboljšega ekonomista pod 40). Card je leta 1995 s kolegom Alanom Kuegerjem objavil kontroverzno knjigo Myth and Measurement: The New Economics of the Minimum Wage, ki je ovrgla učbeniški mit oziroma splošno sprejeto stališče, da minimalna plača znižuje zaposlenost (povečuje brezposelnost). Card je v intervjuju (iz 2006) opisal, kako je na podlagi te knjige izgubljal stare prijatelje in postajal izobčenec med kolegi, predvsem na univerzi v Chicagu, kjer je bil prej zaposlen. Postal je izdajalec.
Card v intervjuju krasno razloži, da osebno nima politične agende in da ga zanimajo zgolj preverljiva dejstva. Da razume, da je mogoče (tudi) v ekonomiji zvijati roke podatkom, pokazati zgolj potrditvene frakcije rezultatov in tako z manipuliranjem propagirati ideološko zaželjene učinke. Intervju je izpred 10 let, toda je izjemno aktualen in Card je odlično napovedal in pojasnil trende na trgu dela – od dviga minimalne plače, povezave med sindikalno organiziranostjo in neenakostjo do polarizacije na trgu dela. Zelo priporočam branje.
Region: Your research on the effects of raising the minimum wage, much of which was compiled in your book with Alan Krueger, generated considerable controversy for its conclusion that raising the minimum wage would have a minor impact on employment.
Have you continued to conduct research on the impact of raising the minimum wage? And do you have an opinion about “living wage” legislation and the petition that’s been circulated recently with 650 or so economists calling for an increase in the minimum wage?
Card: I haven’t really done much since the mid-’90s on this topic. There are a number of reasons for that that we can go into. I think my research is mischaracterized both by people who propose raising the minimum wage and by people who are opposed to it. What we were trying to do in our research was use the minimum wage as a lever to gain more understanding of how labor markets actually work and, in particular, to address a question that we thought was quite important: To what extent does the simplest model of supply and demand actually describe how employers operate in the labor market? That model says that if an employer wants to hire another worker, he or she can hire as many people as needed at the going wage. Also, workers move freely between firms and, as a result, individual employers have no discretion in the wages that they offer.
In contrast to that highly simplified theoretical model, there is a huge literature that has evolved in labor economics over the last 25 years, arguing that individuals have to spend time looking for job opportunities and employers have to spend time finding employees. In this alternative paradigm a range of wage offers co-exist in the market at any one time. That broader theory is, I think, pretty widely accepted in most branches of economics. The same idea is used to think about product markets where two firms that sell very similar products may not charge exactly the same price. The theory explains a lot of things that don’t seem to make sense, at least to me, in a simple demand and supply model.
For example, what does it mean for a firm to have a vacancy? If a firm can readily go to the market and buy a worker, there’s no such thing as a vacancy, or at least not a persistent vacancy. During the early 1990s, when Alan and I were working on minimum wages, it was our perception that many low-wage employers had had vacancies for months on end. Actually many fast-food restaurants had policies that said, “Bring in a friend, get him to work for us for a week or two and we’ll pay you a $100 bonus.” These policies raised the question to us: Why not just increase the wage?
From the perspective of a search paradigm, these policies make sense, but they also mean that each employer has a tiny bit of monopoly power over his or her workforce. As a result, if you raise the minimum wage a little—not a huge amount, but a little—you won’t necessarily cause a big employment reduction. In some cases you could get an employment increase.
I believe that that model of the labor market is correct. There are frictions in the market and some imperfect information. It doesn’t mean that if we raised the minimum wage to $20 an hour we wouldn’t have massive problems, if we enforced it. Realistically, of course, the U.S. is never going to enforce a draconian minimum wage, nor is one ever going to be passed. However, our results don’t mean that minimum wages in other economies couldn’t have some effect.
I think economists who objected to our work were upset by the thought that we were giving free rein to people who wanted to set wages everywhere at any possible level. And that wasn’t at all the spirit of what we actually said. In fact, nowhere in the book or in other writing did I ever propose raising the minimum wage. I try to stay out of political arguments.
I think many people are concerned that much of the research they see is biased and has a specific agenda in mind. Some of that concern arises because of the open-ended nature of economic research. To get results, people often have to make assumptions or tweak the data a little bit here or there, and if somebody has an agenda, they can inevitably push the results in one direction or another. Given that, I think that people have a legitimate concern about researchers who are essentially conducting advocacy work. I try to stay away from advocacy of any kind, but that doesn’t prevent people from being suspicious that I have an agenda of some kind.
I’ve subsequently stayed away from the minimum wage literature for a number of reasons. First, it cost me a lot of friends. People that I had known for many years, for instance, some of the ones I met at my first job at the University of Chicago, became very angry or disappointed. They thought that in publishing our work we were being traitors to the cause of economics as a whole.
I also thought it was a good idea to move on and let others pursue the work in this area. You don’t want to get stuck in a position where you’re essentially defending your old research. I certainly think it’s possible that someone will come up with credible research documenting a situation where raising the minimum wage has a significant employment effect. I rather doubt we will see that right now because minimum wages are fairly low, at least in northern California where I live. My guess is that small raises in the minimum wage won’t have much of an effect.
Region: As you know, some economic models rely on the assumption of sticky prices and sticky wages to help explain trade-offs between unemployment and inflation. What does your research suggest, if anything, about the importance of wage stickiness?
Card: About 10 years ago I did some work with one of my Ph.D. students at the time—Dean Hyslop, now at the New Zealand Treasury—trying to address the issue of downward nominal wage rigidity. Our work was motivated by the observation that in the presence of downward rigidity, we will see a lot of people who have fixed nominal wages. Instead of a smooth distribution of wage changes—some up and some down—we’ll see a mass of people stuck at a zero increase. And the fraction of people with a zero increase will be higher when the inflation rate is lower.
This was an idea that was raised in an American Economic Association presidential address by James Tobin. He argued that pay administrators find it much easier to reduce real wages in a higher-inflation environment. And I think there’s something to that. That is certainly what we found: The spike in the distribution of nominal wage changes at zero is higher when inflation is lower. On the other hand, we then tried to relate the size of the spike to the unemployment trade-off, and we didn’t find much evidence of a connection.
I think there are some rigidities in wage adjustment. We’ve now had 15 years or so of low inflation, so presumably some of the fears or concerns that people had about nominal wage cuts might be different. But in any case, I would say the evidence that nominal wage rigidity has a strong impact on something like the overall level of unemployment is pretty tenuous and has remained quite tenuous. It was an interesting idea, I think, but the evidence is mixed at best. Certainly we couldn’t find anything.
In the early 1980s, a lot of labor economists, including me, studied wage setting in the union sector. The staggered nature of union contracts motivated a whole line of research by John Taylor and others focused on the persistence of shocks in the economy, and I was interested in this general issue. In that particular context I found evidence of an effect of wage rigidity. Specifically, unionized firms with multiyear labor contracts have their nominal wages set two or three years in advance. If there is an unexpected bout of inflation, these employers end up with lower real wages than they initially intended. In the late 1970s, there were periods of rapid inflation, and real wages ended up 3 or 4 percent lower than expected. There was also a rapid slowdown in inflation in the early 1980s, so some employers ended up with unexpectedly high wages.
I used this idea to look for evidence of movements along the demand curve and found employment responses to unexpectedly high or low real wages. So in this case I found real responses to nominal rigidities, although these rigidities were actually built into formal contracts. This kind of rigidity is less interesting now with the declines in unionization in the U.S., though it is still important in many European countries, I think.
UNIONS AND INEQUALITY
Region: As you mentioned earlier, union membership has declined dramatically, at least in the private sector, in the United States. You’ve done a lot of research on the impact of that decline in terms of inequality among both men and women. Can you tell us briefly what you’ve found? And do you think the decline is a significant factor in growing income inequality in the United States?
Card: First of all, the presumption that unions might have an effect on men is based on the observation that within the union sector, wages are more compressed than outside the union sector. There are several institutional reasons for this. For one thing, unions try to equalize wages for people doing similar jobs. They also try to lower the differences between higher-wage and lower-wage people, largely for political reasons. Both features tend to lower inequality in the union sector.
The same thing is not as true for women, largely because unionized women work in sectors where there is already a lot of institutional wage setting, like teaching. In these settings, whether or not there is a union involved makes less difference. In any case, you don’t see much difference in the variability of wages among women who are unionized, or not once you control for education.
What I had done was look at the decline of unionization and how that has affected overall inequality for men. One thing that countervails the equalizing effect of trade unions for men is that unions raise wages. If they raise pay for one group and leave it the same for another, that in itself increases dispersion. The starting point for any analysis is to measure how the equalizing tendency within the union sector plays off against the fact that wages are now higher for an arbitrary group of workers.
The answer for men has always been that the equalizing effect is bigger. Actually, this wasn’t really understood in the literature until the early 1970s when Richard Freeman conducted the first detailed empirical studies of unions and inequality. Prior to his work people didn’t realize the equalizing effect was so much bigger.
My results suggest that the decline in unionization is a small but noticeable part of the overall increase in inequality for men over the past 30 years—maybe 10 to 20 percent of the total. It was most important for workers at the middle of the wage distribution. Typically, a unionized worker is not somebody at the bottom of the distribution, but somebody at the middle. In the 1970s, unionization was pushing this group a little closer to the top and narrowing the degree of wage variability across jobs. As unionization has gone away, there has been some downward drift in the level of wages (relative to the top skill groups) and an opening up of wage inequality in sectors like trucking and manufacturing. Both effects are important, but they’re only a small part of the overall trend.
And within the female labor force, there’s really no effect because unions don’t really equalize wages much for women.
SKILL-BIASED TECHNICAL CHANGE
Region: I think it’s fair to say that most economists embrace the hypothesis of skill-biased technical change as the driving force behind recent inequality trends in the United States. Do you?
Card: Like a lot of other ideas in economics, I think that “skill-biased technical change” can be pulled off the shelf and used to explain inequality in a very superficial way. John DiNardo (of the University of Michigan) and I were troubled by the fact that there are a lot of patterns and trends in the labor market that don’t fit in very well with a skill-biased technical change explanation. We were motivated to embark on a Don Quixote mission, a noble cause that wasn’t going to go anywhere [laughs].
One thing we pointed out, for example, is that women are lower skilled than men, if you take the fact that they have lower wages as evidence of their skill. The SBTC theory says that people with lower skills should have slower wage growth than people with higher skills. But over the 1980s, women did much better than men. It’s also the case that over the 1990s, women’s relative wages were fairly stable again. So there was a long period of stability of women’s relative wages, then a period of convergence of women relative to men that ended in 1991-92, and then stability again. That’s an important set of trends that SBTC doesn’t address. SBTC might be consistent with it; it might not be, but the theory needs a lot of auxiliary hypotheses to work.
The same thing is true with respect to the black/white wage gaps. Blacks earn less than whites, and many people believe that the reason they do so is because they’re less skilled. Nevertheless, during the 1980s, the black/white wage differential was stable. It didn’t widen as people had predicted it might.
Another trend that didn’t fit with the SBTC hypothesis concerns the relative wages of people with different bachelor’s degrees. There are a couple of different data sets that collect starting salaries for newly minted B.A.s. What these data show is quite remarkable. Everyone knows that the average wage of young college graduates went up over the 1980s. It wasn’t the case, however, that the gains were most pronounced in engineering or science. They were actually greater for graduates in the humanities, which doesn’t seem consistent with the idea that there is increasing demand for technically proficient, computer-savvy people.
Another thing we looked at were wage differences across industries. Historically, economists have argued that differences in average wages across industries are related to skill differences. Wages in many manufacturing industries, like airplane construction, are well above average; wages in other sectors, like retail trade, are much lower. Those pay differences remain even after you control for the characteristics of the workers.
This reminds me of something that would be fun to mention. A famous data set from the 1970s—the National Longitudinal Study—asked a series of questions called “Knowledge of the World of Work.” Teenagers were asked questions like: “Who earns more: a worker in a shoe factory or a worker in a steel factory?” Every labor economist knows that the steel worker earns more. (Of course, there are no shoe factories in the U.S. anymore, and not so many steel factories, so the question is obsolete.) But the wage patterns across industries were so persistent that teenagers were supposed to know about them.
What DiNardo and I found, though, was that in the 1980s and ’90s, there was no systematic tendency for wages in the lower-wage industries (like shoe manufacturing) to fall relative to wages in higher-wage industries (like steel). The wage structure was very stable. So if you believe that the industry differentials are due to skill differences, the patterns are not what you would expect from SBTC.
A final puzzle concerned the age structure of the increases in the relative wages of college versus high school graduates. Wages of young college-educated workers rose relative to young high school workers, but for people over age 40 or so, there really wasn’t any change in the high school/college premium.
DiNardo and I pulled together all these facts and said: “Here are a bunch of facts about the labor market that people should be aware of and that we think should attract more research attention.” To some extent, we were lamenting the fact that research on wage determination had lost direction in the 1990s. It seemed like analysts were saying: “It’s all just SBTC. There’s nothing more to say.” We wanted to point out that there are many, many puzzles that SBTC can’t explain and that people should be working on.
Region: So SBTC wasn’t the silver bullet that it seemed to be.
Card: It’s definitely not a grand unifying hypothesis. I don’t know that experts in the area ever felt that it was, but to outsiders and students, it was sometimes portrayed as a unifying theory. In fact, it leads to some pretty bad predictions.
Vir: The Region, Federal Reserve Bank of Minneapolis