(1) TAX RATES AND LABOR SUPPLY （税率和劳动供给）
Region: As you may know, Ed Prescott has argued that different tax rates on labor in the United States and Europe explain why Europeans work fewer hours than Americans. Do you accept that explanation?
Card: I think that taxes could be part of the story. I would be surprised—given what I think is the credible range of estimates for the elasticity of labor supply—that tax differences are big enough to really explain the whole story.

It is conventional in one school of macroeconomics to assume that the elasticity of labor supply is quite high. And for some purposes that assumption may be correct. In thinking about responses to intertemporal or short-run shocks, for example, it is possible that the relevant elasticity is higher than labor economists have been able to estimate with conventional data and methods. A lot of work in the last 20 years has shown that the actual responsiveness of individuals to short-run fluctuations in wages may be bigger than the conventional estimates from the literature in the 1980s. Nevertheless, for the issue of taxes, we're really concerned about the long-run labor supply elasticity, which includes both the so-called substitution effect, representing the pure price effect of the higher wage, and the income effect. Those two go in opposite directions.

I believe that many labor economists in the United States—starting with H. Gregg Lewis, who was the intellectual father of modern labor economics—would agree with the view that in the long run the income effect dominates the substitution effect, so that over time, as societies become richer, people work a little bit less.
Region: They want more leisure.

Card: Yes, on average. That conclusion would be consistent with the long-run pattern of labor supply in the United States between 1890 and 1990. And in that case, one would normally assume that higher taxes [mean] lower wages and lead to a bit more work. That would have been my starting presumption, to tell you the truth: that the long-run labor supply elasticity is pretty small, and probably negative.

Twenty years ago, I think everyone was pretty comfortable with that notion that the reason hours fell from 60 or more per week at the beginning of the 20th century to well under 40 today is that we have become richer. More recently, hours trends have flattened out, and maybe today some people believe that the traditional interpretation of historical hours trends is incorrect, or inapplicable to the situation today. My own view would be that the plausible elasticity is not very big and that therefore the tax explanation won't go too far.

But I don't want to get in a fight with Ed Prescott. After all, he's got a Nobel Prize and I don't [laughs].

(2) MINIMUM WAGE （最低工资争论）

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.

(3) SKILL-BIASED TECHNICAL CHANGE （技能偏向的技术进步作为理解不平等上升的有用框架？）

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.

(4) IMMIGRATION （国际移民对迁入地市场的影响：零vs.负）

Region: You've found that the economic impact of recent immigration on native-born workers is slight and that second-generation immigrants have done well educationally. Not all economists appear to accept those conclusions.

What do you feel is the heart of the disagreement, and does it seem likely to you that economists will be able to arrive at a consensus sometime soon?

Card: I don't have a prediction for that. Again, my interest in the question of immigration is driven by a slightly different objective than asking whether immigration is good or bad. Looking across different cities, we see remarkable variation in the local skill distribution. A city like Los Angeles is nearly half immigrants and has a very high fraction of less-educated immigrants. Other cities like Pittsburgh and Cleveland have very few immigrants and actually have a relative shortage of low-educated workers. That leads me to ask, How is the labor market adapting? That is one of the most important questions in my field: How do markets adjust to differences in supply?

I've also been motivated by trying to understand the mechanisms that lead to the apparent flexibility of the U.S. labor market. Economists believe that U.S. labor markets are relatively successful. Certainly around the world we're held up as a paragon of adaptation to immigrants in particular, but also to other economywide shocks. I've always thought it was important to understand why.

I'm not sure that there is really so much difference of opinion on the impacts of low-skilled immigration. Let's consider two extreme views: The most extreme negative view amongst professional economists would be that between 1980 and 2005, continued immigration reduced the wages of the least-skilled natives by 4 or 5 percent, once we take into account capital adjustments. On the other side, I don't think anyone thinks immigration has helped low-skilled natives very much. So the most positive view would be a zero effect.

So relatively speaking, that leaves a very narrow range. Rhetorically, however, the debate is mired in the same problem that arises in the minimum wage literature and the school quality literature. The debate is polarized between people who say "no effect" and people who say "big effect." And that is not really helpful at the end of the day. It's quite possible that unskilled immigration is having some negative effect on unskilled natives. The question is, How big is the effect? Has it reduced native wages by 20 percent, or has it reduced their wages a couple of percent?

Given my reading of the literature, the best available evidence is the effect is on the order of a couple of percents nationwide over 25 years, and possibly a little bigger in certain local labor markets, although as I said in the presentation today, I think the effects are hard to isolate. [See Supply, Demand & Deadlines '06.] Given that, it seems like we should move on to focus on the other effects of immigration. And research from a theoretical perspective as well as from an empirical perspective suggests that there are positive benefits for other workers, for consumers and for the economy as a whole.

So my perspective on the question is that U.S. labor markets are remarkably able to adapt to changing composition of local labor forces. Immigrants are absorbed incredibly quickly and easily, at least in most cities. In the future my work, I think, will be focused on the adaptation question. What are the main mechanisms for absorbing immigrants? What does that tell us about the way that the labor market as a whole functions? What lessons does it give for other countries, where immigrants don't do so well?
I think some economists are concerned that immigration has gone "too far." Just as in the minimum wage case, where it's important for opponents to show that the minimum wage has reduced employment, people who want to lower the rate of immigration think it's extremely important to emphasize the negative effects of immigration, at the expense of other dimensions of the story.
My guess is that at the end of the day, most voters' and legislators' views about immigration, and even most economists' views, are driven by concerns outside of the narrow realm of economics. They're driven by concerns over protecting the English language or the political culture of the country. Some people believe that cultural and linguistic diversity poses serious challenges for a country. Others believe that diversity is good, and we'll be a better country if we have more diversity. At heart, these views have little to do with the labor market effects of immigration.

(5) WHY LABOR ECONOMICS?

Region: What motivated you to become a labor economist? Obviously you had the econometric bent, but you could have applied that in any number of fields. Other fields might have been "sexier," more remunerative; you could have gone into finance. Why labor economics?

Card: I think that I've always been interested more in human behavior than in the behavior of derivative assets [laughs]. Actually, as a graduate student at Princeton in the late 1970s, two of my fields were labor and finance. So, having followed the finance literature a little, I think there have been a lot of interesting developments. Certainly the techniques that have been developed for dealing with uncertainty in a continuous-time environment, for example, are quite interesting. And I think the basic ideas about markets really work in finance. In the labor market, there are information issues, rigidities and a huge amount of heterogeneity, none of which you have when you're dealing with shares of IBM or options in Dell.

Much of my work has focused on how the labor market works for lower-skilled or less-able people. I think somebody should pay attention to that. It seems important enough to me. Trying to understand why some people succeed and others fail, and how their success or failure is related to the environment, institutions and the people themselves—those seem like important issues to me.

There is an even simpler explanation though. I actually started out as a physics major in college and switched into economics relatively late. So I needed to get into classes that would take me. One of the few I could get into was labor economics. And I had a very good instructor—Michael Abbott—who was a student of Orley Ashenfelter. Orley then recruited me to go to Princeton as a Ph.D. student. So my history was set.

In the 1980s, labor economics was also a very exciting field. It wasn't well understood by people outside the field, but labor economics was at the forefront in combining economic theory, high-tech econometrics and exciting new data sources. We felt we were on a very serious mission.
I am also a very practical person, and labor economics is an extremely practical field. I think it's a great accomplishment of American academia that you can find 10 labor economists who know everything there is to know about something like unemployment insurance or the welfare system—not just conceptual things, but all the details. If you want to evaluate a change in a program, or understand how the welfare system or unemployment insurance works, you need labor economists. Their focus will be on the data, first and foremost, and on the institutional features that matter. Labor economists also use models that are close to the data and aren't wildly inconsistent with long-run trends or well-known facts.

Economics as a whole is really a combination of two kinds of people: those who are very practically oriented and those who are more like mathematical philosophers. The mathematical philosophers get most of the attention. They deal with the big unanswerable questions. Labor economists try to be more scientific: looking for very specific predictions and trying to test these as carefully as possible. The mathematical philosophers get very frustrated by labor economists. They come up with a broad general theory, and we tell them it doesn't fit the evidence.

Region: Skill-biased technical change, for example?

Card: Or tax differences explaining labor supply differences.

Region: I was trying to get a little farther from Minnesota [laughs].

Card: Right. An interesting new example is behavioral economics. Behavioral economics is largely driven by a philosophical approach. People in the field believe that humans have a lot of trouble making decisions and make systematic mistakes. A lot of students come to Berkeley to study behavioral economics ...
Region: ... because of Matthew Rabin and George Akerloff?

Card: Yes, and others. They're great colleagues and wonderful teachers, and inspiring to the students—much more so than labor economists. But I like to remind students that they need to know the practical side of economics too. I explain that if they get a job in Washington and someone asks them how many more people will enter welfare if we raise the benefit level, they are going to come back and do the same calculations that Orley Ashenfelter did in 1983. Labor economists need to know the basic nuts and bolts of our field. That's why we get paid reasonably well. On average, philosophers don't get paid much [laughs].

Region: Thank you so much.

—Douglas Clement
October 17, 2006