David Card (Gelph, Canada, 1956) holds a Ph.D. in Economics from Princeton University and is a professor of Economics at the University of California, Berkeley. In 2021, he was awarded the Nobel Prize in Economics, along with two other authors, for his contribution to economic research through the empirical study of everyday phenomena in the labor market such as wage trends, education, inequality, or immigration.
Visiting Spain to give a lecture at the Ramón Areces Foundation on the 40th anniversary of Fedea, he grants an interview to EL MUNDO in which he admits that when 20% of the population already earns the minimum wage, then raising it could indeed affect employment.
"There is still a fairly large number of economists who think that the minimum wage is a bad idea."
Although he has studied multiple aspects of the labor market, he is especially known for his study on the minimum wage increase in New Jersey in 1994, in which he concluded that it did not lead to job destruction in fast-food chains but quite the opposite. Would he dare to extrapolate that conclusion to any minimum wage increase in any country, under any circumstances?
No, that study was 30 years ago, and there have been many subsequent studies on minimum wage increases, for example in the UK, where it has been raised several times, even unexpectedly in 2018. Nowadays, we have a lot of evidence from other cases: Germany, the UK, many from the US... so I would probably rely more on those more recent studies. Our study was important in terms of opening the debate and showing people what could be done. I believe that most studies show that modest increases in the minimum wage have no effect on employment. That's the case. But if the minimum wage reaches a level where 20% of the population receives it, then, if it is raised, there are good reasons to think it would be very different from what happened in New Jersey or in those other studies. For example, in the UK, the minimum wage is quite low, even now. In Germany, it is also low. It may be different in countries like Brazil or Portugal, where it is close to 80% of the average wage, or 75%, and where many people earn exactly the minimum wage.
I was asking because in Spain in recent years this issue has generated a lot of controversy because the Government raised the Minimum Wage by 23% in 2019 and in the last five years, it has accumulated a 61% increase. Institutions like the Bank of Spain have estimated that the increase prevented the creation of between 75,000 and 150,000 jobs, do you think this is possible?
I don't know enough about it, but I am surprised that there are no good studies on previous increases in Spain. I think the data here is not as good for studying the minimum wage as in Germany or the UK, so I don't know if that is the problem or if studies simply have not been conducted. The most important thing would be to study what happened the last time the minimum wage was raised in Spain. That's what I would do.Do you think it is a good idea to have differentiated minimum wages based on age or depending on the region where one resides?
Probably yes. The US, for example, is very diverse, and I suppose Spain is too. If you think about Madrid or Barcelona, there are high salaries, but if you go to Andalusia, they are low, so you could say that the minimum wage should vary according to the differences in the cost of living in each place. In the US, states set minimum wages in most places. The federal government has a minimum wage, but it really only applies in places with very low wages, and then places with higher wages have their own minimum wage.
Do you think it is a good idea?
Probably yes. There are pros and cons, but probably yes.
A recent study by Sara de la Rica, from the ISEAK foundation, with whom you coincided in your conference, concludes that in Spain, 12% of workers are in poverty not because of their salary, but because of the intensity of work, as they work few hours a day. Do you think it might be more interesting for governments to focus on addressing this issue rather than continuing to raise the minimum wage?
It is a problem that arises in some countries. Probably we should ask if they are single mothers and work part-time because they cannot get childcare, in that case, we should do something about it. From the government's cost perspective, it is a difficult calculation because you may be creating jobs where people work for relatively low wages and, in terms of the jobs created, the cost is basically the same as that of childcare, so it does not save much for the government to put them to work. It may be good for them, it may be good for their children, but... you know, it can be quite costly for each additional hour of work created. It may be a matter of whether it is wanted or not. In the US, there is a lot of part-time work, and much of it has to do with childcare issues because the US practically has no government provision of childcare. But there is a lot of informal care, mostly done by immigrants, and that is going to be a big cost of the immigration policies that this Administration is implementing. No one wants to talk about it, but it exists: people get someone to take care of their children and do not pay all the taxes they should for it.
In recent years in Spain, wages have grown less than the level of prices, which has caused a widespread impoverishment of the working class. In one of his studies, he argues that wages depend a lot on the company that hires you, do you think that here real wages are stagnant due to the composition of our productive structure, which has few large and productive companies?
Yes. There is much discussion about this even in the US because in reality, many people do not earn much money: if you adjust for the cost of living, they may not be much better off than someone earning close to the minimum wage here. And most of the economic growth in the US in the last 4 or 5 years is actually explained by ten companies, just like the increase in the stock market value. The average worker is not doing so well, even in the US, and the bottom 25% is struggling quite a bit, so it is not that different. It's just that when you look at things like GDP, the number of patents, or the value of the stock market... these very successful large companies really dominate everything. There is a downside to that, which is that companies come and go. It used to be thought that successful companies were a safe bet, and some are basically almost gone or about to be rescued by the government. I suspect that most of these successful companies will be less successful in the future and will fail. That's what has always happened. HP, Hewlett-Packard, in the 80s was considered the best company to work for in the US, made a lot of money... now, basically, they are almost nothing. General Motors used to be a great company and now it is worth nothing.
You have argued in your talk that the issue of immigrant integration, a subject you have also studied, is more about social and religious values than the economic idea that they destroy national employment, do you think the same happens in Spain?
I have not seen good studies on immigrant assimilation in Spain. There are very good studies in the United States and in the Nordic countries because they have fantastic data. In the Nordic countries, immigrants have very poor outcomes. Their children do not progress. In the US, Canada, Australia, even in the UK, the children of immigrants - even if the immigrants themselves do not have good outcomes - often do well. At least historically. I would think that here, for example, immigrants coming from Venezuela, I would anticipate they will have good outcomes. First, because the immigrants who arrive are quite well educated. They are probably above average, or at least at the level of the Spanish labor market average because even Venezuelans who have emigrated to the United States have educational levels above the average. And they are also doing quite well there. And then, they do not have a language barrier. So, I believe Spain has a great advantage thanks to countries that were former colonies, some of which are going through disasters like Venezuela, which could be positive for Spain. What do people think here when they come across a Venezuelan? Do they think "Oh my God, he's Venezuelan, I hate Venezuelans"? Or do they not even realize they are Venezuelans?
They may realize but they are not concerned...
Then I think that is a great advantage for Spain. Something similar happens in Mexico. Every time there is a crisis in South America, everyone ends up in Mexico. Chileans, for example, all Chileans went to Mexico. So Mexico, in a way, has always benefited from being the place people can flee to if there is a problem. Because it is a fairly open country. It does not have a great economy, but at least it is a place to go. And I think Spain could play that same role, take advantage of that. Now, African immigrants will continue to be a challenge in Europe because they arrive with very low education, and racial, linguistic, and religious differences will also be very marked in the next generation. Now that Donald Trump is trying to get rid of all the talent from other countries, maybe Spain is also well positioned to attract all those talented Venezuelans. That would be my policy recommendation. There are many talented people around the world who need a place to live and work, and they do not cost anything when they arrive, especially if they already speak the language because you do not have to educate them. So, in a way, you get free labor for a whole generation.
As a professor in the US, what do you think of Donald Trump's policies right now?
They are the worst, in my opinion. Simply the worst combination of nonsense. They are destroying the academic environment. I don't know if it has been well understood what a disaster this is. For example, the health research sector is dying. Medical faculties largely depend on public funding for their research, and it is being cut and diverted to meaningless things. The issue of trade, for example... On Friday, they announced that they are going to impose a new round of tariffs, even on medications. And the United States already spends 16% of GDP on healthcare. This will only make it more expensive. But the most concerning thing, honestly, is that many companies know that this is a problem, but everyone is terribly afraid to say anything, so no one speaks up. If you are a company and say "this is harming us," they will come after you, take away contracts, harass you, whatever. So, there is a real climate of intimidation. And notice that not even the CEOs of large companies - who are usually complaining about the government all day - are saying anything. If you realize, there is no debate. Nothing is being heard.
Another important issue regarding employment, both in Spain and the EU, is absenteeism, as it has increased significantly...
I will tell you that there are two reasons why absenteeism is not such a big problem in the US. One is that you can be fired very easily. And the other is that, even if you need the job, you don't have a safety net. I think that if you have a very low-paying job or if wages are very low, many people just do the bare minimum. Although I also suspect that there are many others who are not like that, such as taxi drivers, who earn low wages but have to follow a very strict schedule.
How do you think Artificial Intelligence will affect employment?
It is a topic of enormous debate. The way I usually explain it is this: when the Internet was developed, in 1995, people talked about what it would mean. But the problem is that in 1995, you couldn't even imagine what the Internet would actually cause, like Uber or Amazon. That changed retail and the taxi industry, for example. And I suspect that artificial intelligence will do something similar. That is, it is very difficult to predict exactly what new things will be created. In the history of technology, the same thing has always happened: a lot of jobs are destroyed, and then new ones are created, and some people lose their jobs and basically fall behind. But then there are others who move to the new jobs, and in the end, we may even be better off because technology usually improves productivity. But there is a question around AI, and it is that if you listen to one of these tech billionaires, like Peter Thiel, they imagine a world where most people no longer work. Have you seen the movie WALL·E? Humans have created robots to take care of them. It's an animated movie. And... they float around doing nothing, and the robots do everything. Humans don't know how to do anything. They just feed them and keep them calm. And he has a dystopian vision like that. Many of these tech world guys have that idea: that 90% of the population will be irrelevant. I'm not sure how they think they will sell their products. I mean, who will buy their things if there are no customers? But it doesn't seem to worry them much. There is a dystopian trend there. Maybe in the next 10 years, 20% of jobs will disappear or be replaced. If it happens relatively slowly, we can adapt. If it happens very quickly, then the people who lose their jobs basically get stuck, and they usually don't adapt. Think about East Germany... they opened the wall suddenly, all those factories became obsolete. Those guys didn't really do anything afterwards. Basically, they all ended up living on social assistance.
You changed the way researchers work with your empirical method...Well, I wouldn't take that much credit. Many people contributed, yes....
I was wondering if you think it is concerning that governments do not really use those empirical studies before making their policies or afterward for ex-post evaluations...
There is a fairly well-known figure in the history of science, Thomas Kuhn, who said something like "new ideas are accepted when the old ones die." And that has some truth. In fact, in economics, there are still quite a number of economists who think that the minimum wage is a bad idea, and that we should have a free market, without intervention in the labor market. Quite a few. So, I wouldn't say there is unanimous consensus among economists. I don't think it is realistic to expect that, simply because there are a few studies, things will change immediately. There has to be a political opportunity for change, or the evidence has to accumulate and people change their minds.
What do you think of the quality of scientific research in Economics currently?
It is much better than it used to be. I think the quality of evidence is higher than ever before. Still, there are many things that surprisingly remain understudied. The whole issue of the benefits of free trade is a good example. Or someone asked me: "What do we know about what happens if a government maintains a 10% deficit for 20 years?" We know practically nothing about that. Macroeconomic policy, in general, is not very scientific.
What do you believe are the main challenges for the economy?
Actually, barriers to people's mobility and then it will be barriers to trade. I am from Canada. Canada is being harmed because it has been integrated into the US economy for the last 50 years and is now facing many tariffs. Supply chains were all integrated, now they are simply disintegrating. The same goes for Mexico. So, the entire integrated economy, the global economy, is simply falling apart.
What are you currently researching?
I am giving a talk on Monday about intergenerational mobility in the United States. And we are looking at two components of that. One is your family, your own family, and the other is families in your neighborhood. In the analysis we have done, families in your neighborhood have an incredibly high effect on children. So, living in certain neighborhoods has a great causal effect. And that helps explain much of the difference between black and white children because black children do not live in the same neighborhoods as white children, even if they have the same income. And that is quite interesting in my opinion. Also, on advanced math education. We are working on a couple of projects on that right now. In the US, different cities have different educational curricula. For example, we are studying different cities in Florida because we have very good data for Florida that allow you to follow students from kindergarten to college. And you can have two cities side by side with completely different policies... we look at what kind of math programs are offered between sixth grade and high school, and in high school. And it is really interesting to see who benefits from the different policies. Much research in the US on education focuses on underperforming children because it is a big problem. But I came to the conclusion that there is not much we can do about it. It is not so easy to figure out how to fix that. I think there are more possibilities that we could do with high-performing children. I also just finished an article on Portugal. I work quite a bit with Portugal because I have a friend who lives there. During the Troika years, they changed the way pharmacists could charge for things. And then from the cost of medications, the amount of money pharmacists earned per prescription dropped by 40%. And over the next 5 years, pharmacist salaries dropped by 40%. And pharmacists are all women, just like in Spain. So, we are studying what happened in the long term with people's choice to become pharmacists. We wonder if people continued to choose to study pharmacy despite the salary decrease, and the answer is yes, but they are no longer as bright individuals.