Leading American academic economist to give public lecture in Canterbury   1 Jul 2014

A leading American academic economist will give a public lecture at the University of Canterbury next week looking at the effect of immigration on labour markets.

Professor David Card from University of California, Berkeley, will deliver the university’s annual Condliffe lecture on campus on July 8. Professor Card is a likely future Nobel laureate for his path-breaking work establishing causal relationships in labour market data.

He is most famous for work questioning whether the minimum wage has a negative effect on employment. He says traditionally economists tended to look at labour markets as if they were the same as other commodity markets, such as milk products. This idea has a lot of problems. It says that a worker gets the same wage regardless of who they work for – and assumes every litre of milk sells for the same price, he says.

``It also says that if you raise the wage that employers are forced to pay, they will hire fewer workers. During the 1980s economists started to develop better models of how labour markets really work.

``In these more realistic models, there is not a single wage: each employer sets his or her own wage, and workers have to look around to find better jobs. That all sounds totally reasonable to most people. But importantly, in this kind of world, the effect of a minimum wage is different.

``Now, when minimum wage is raised, only some firms, those that paid low wages, are affected. The higher wage may cause these firms to have more workers because it lowers their turnover rate. Before, they had low wages, high turnover and continuing vacancies. After a wage rise, workers who can only find a low wage job have less incentive to keep looking and firms end up filling their vacancies.

``That is the theory. It’s not very controversial any more. In the 1980s, however, many economists still thought that the old idea, that all firms pay the same wage and that employers are right on the knife edge as to whether to hire or fire, was correct.

``I studied the effect of a minimum wage increase in New Jersey. We collected data from fast food restaurants in New Jersey and nearby Pennsylvania, just before the minimum wage went into effect, and again eight months later.

``We compared employment changes at the stores in New Jersey that had low wages prior to the increase - and had to raise their wages to meet the new law - to the changes at two other sets of stores.

``They were those in Pennsylvania, where there was no change in the minimum, and higher-wage stores in New Jersey, that were already paying more than the new minimum. We found that the stores that had to raise their wage actually had more jobs after the rise in the minimum. Since then many other studies have found similar results,’’ Professor Card says.

In his Condliffe lecture, Professor Card will be speaking on his research findings on immigrants and labour markets, specifically how immigrants affect the labour market opportunities of natives, the success of immigrant's children and the possible slowdown in immigrant assimilation, and understanding the strong backlash against immigrants in many countries today.

ENDS

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