[People人] Minimum Wage and Income Experiment with Vietnamese War Veterans... Three Nobel Laureates in Economics Verify Social Issues of the 'Vulnerable Groups'

David Card, Joshua Angrist, and Guido Imbens
Joint Winners of the US Professors Award

[Sejong=Asia Economy Reporter Moon Chaeseok] Does higher education level lead to higher wages? Were Vietnam War veterans able to earn higher incomes than those who did not serve? What impact does raising the minimum wage have on employment?

The winners of this year’s Nobel Prize in Economics?David Card, Joshua D. Angrist, and Guido W. Imbens from the United States?were recognized for establishing a more sophisticated framework to analyze economic research closely related to our daily lives. They elevated the level of research methods that compare and analyze subjects with nearly all variables held constant, without pre-setting experimental variables, by directly analyzing real-world situations. This approach is called a ‘natural experiment,’ and due to the difficulty in controlling variables such as temperature, humidity, and surrounding colors, it is praised as a perfect technique for economic analysis, which is often likened to studying ‘living organisms.’ Professor Sung Tae-yoon of Yonsei University’s Department of Economics said, “Taking the COVID-19 pandemic as an example, it is not something arbitrarily designed in a laboratory but an actual real-world event,” adding, “They deserve the Nobel Prize because they contributed to raising the level of experimental methods that measure how such real-life phenomena affect members’ incomes and lives.”

David Card, Professor at the University of California, Berkeley (UC Berkeley) campus. (Photo by AP Yonhap News)

These scholars did not merely advance the level of economic research. All three professors share a common focus on studying the incomes of ‘vulnerable groups,’ such as workers earning minimum wage and young people who had to go to war to make a living. Their research achievements, which delve deeply into the quality of life of vulnerable populations beyond just creating convenient research methods for economists, have become increasingly significant as social uncertainties like the COVID-19 pandemic and climate change grow. This is also seen as a key reason why they won the Nobel Prize in Economics. Professor Yoon Dong-yeol of Konkuk University’s Department of Business Administration explained, “As the dual structure of the labor market (large corporations vs. other companies, regular vs. irregular workers, and widening gaps between primary and subcontractors) is intensifying worldwide due to the impact of COVID-19, issues of support and protection for vulnerable groups are becoming more important, which has brought attention to their research outcomes.”

Professor Card, who teaches economics at the University of California, Berkeley (UC Berkeley), is famous for his 1994 paper examining the relationship between minimum wage and employment in New Jersey and Philadelphia (Pennsylvania). The minimum wage for franchise restaurant workers in New Jersey rose from $4.25 to $5.05, but it did not significantly affect employment. Philadelphia was chosen as the experimental control site to minimize the influence of other economic variables such as economic growth rates. Since New Jersey raised its minimum wage, a state maintaining the same minimum wage was needed for comparison. Pennsylvania was the closest, so Philadelphia was selected, and the study concluded that New Jersey did not experience a particularly notable decline in employment. This finding caused considerable controversy in the U.S. at the time regarding the effects of minimum wage increases and continues to fuel similar debates in South Korea.

Joshua D. Angrist, Professor at the Massachusetts Institute of Technology (MIT). (Photo by EPA Yonhap News)

Professors Angrist from the Massachusetts Institute of Technology (MIT) and Imbens from Stanford University mainly researched the correlation between education levels, military service, life trajectories, and income among vulnerable groups. Angrist, for example, revealed a specific causal relationship between lifetime earnings of Vietnam War veterans and non-veteran U.S. citizens. The results showed that veterans did not earn more than non-veterans over their life cycles. Using the U.S. education system, where students can only drop out after turning 16, he investigated the wages of students who were effectively forced to receive one additional year of education to verify the effect of that extra year. He also examined whether the influx of Cuban immigrants in 1990 lowered wages in Miami and found that there was no significant wage change.

Professor W. Imberns, Stanford University. (Photo by EPA Yonhap News)

It is true that the laureates verified the ‘modern economy,’ full of risks such as economic fluctuations, investment sentiment, policies, and natural disasters, through sophisticated causal analysis. However, experts advise that it is essential to adapt their research findings to South Korea’s specific circumstances. In particular, there is a strong voice emphasizing that Professor Card’s minimum wage experiment must be interpreted with the differences between Korea and the U.S. in mind.

Experts point out that, unlike South Korea where minimum wage is uniformly applied without regional differentiation, the U.S. has different wage systems between the federal and state governments; that franchise businesses studied by Professor Card in 1992 can now replace labor with kiosks through automation, making the proposition ‘employment is maintained even if minimum wage is reduced’ no longer valid; and that South Korea’s high proportion of self-employed individuals exposed to ‘perfect competition’ makes it inappropriate to directly apply ‘labor experiments’ conducted on franchise businesses where ‘monopoly demand theory’ operates.

Former Director Choi Young-gi of the Korea Labor Institute said, “High-end franchise businesses where monopoly demand theory applies have many regular customers, so local demand is almost fixed,” adding, “It is difficult to argue that raising the minimum wage does not significantly reduce employment based on such cases.”

This content was produced with the assistance of AI translation services.