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«American Economic Association In Honor of David Card: Winner of the John Bates Clark Medal Author(s): Richard B. Freeman Source: The Journal of ...»

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In a very different analysis of inequality [43], David explored the effect of the decline of U.S. unionization on the distribution of wages. I have a vested interest in reduce inequalitywithin and across this issue, having estimated that unions substantially establishments and between blue-collarand white-collarlabor. My best estimate is that about 20 percent of the U.S. rise in inequality during the 1980s and 1990s is due to the fall in union density. Thus, when I received an early form of this paper several years ago, I read it with more than the usual attentiveness.If the paper reported something similar to my findings, the odds were that I would inadvertentlygloss over any problems; if the paper found that the fall in unions had no effect on inequality, my criticalantennae would be aroused. Using 12 monthly samples from the 1987 and 1988 CPS, David constructed a matched panel of observationson men aged 24-66 (no easy task, as anyone who has used the sample design of the CPS knows). He then used this longitudinal file to explore union effects on the wage distribution, paying particular attention to measurement error in union status and the potential selectivityof better workers into union jobs. The final step applies the estimated effects of unionization on variancesof earnings and wage differentialsby quintile to assessthe aggregate effect of changing union density on inequality. For reasons that escape reason, the Econometricaversion of the paper eliminated the evidence on the change in the wage structure, so that the full force of the evidence is best seen in the earlier NBER working paper. Still, the conclusion that (p. 42) "changes in unionization account for one-fifth of the increase of the variance of adult male wages between 1973 and 1987" seems just right to me.

In two papers with Tom Lemieux, David has examined the rise in wage dispersion and returns to skill in the 1980s, treating both men and women workers and black and white workers. In [48], they ask whether a model that posits that earnings vary along a single latent dimension of skill can explain the rise in differentials among measured attributes of workers and the rise of inequality within those groups, and show that, gender aside, some of the rise in residual wage variation within age and education cells in CPS data can be attributed to an increase in the price of a single unobserved skill. In [33] they report further that in PSID data the In Honor of David Card:Winnerof theJohn Bates ClarkMedal 177 black-white male wage gap rose, which is inconsistent with a single-factor skill story about this change in the wage structure: since black men are lower in the wage distribution than are whites, their earnings should have fallen in a period of rising inequality. The conclusion of this work is that the wage structure cannot be understood in terms of a single unobservable measure of skill, much as that would simplify the lives of economists.

A later paper with Lemieux and Francis Kramarz [41] contains a more surprising result. This paper uses micro data sets for the United States, Canada and France to contrast changes in wage differentials among workers with different levels of skill with changes in their employment. The relative wages of the low skilled fall the most in the United States, then in Canada, and least in France. All else the same, this pattern of wage changes might be expected to generate greater relative increases in employment for the low skilled in the United States than in France, with Canada in between. However, the data do not support this demand-side interpretation: the relative decline in employment rates is similar across countries. This finding is, you will note, consistent with the evidence that changes in the U.S.

minimum wage had little impact on employment.

A final paper in this category, by David and Dean Hyslop [42], shows that micro-empirical analysis can speak to macroeconomics. Many economists believe that moderate levels of inflation facilitate real wage cuts because employers are loathe to cut nominal wages. If so, the dispersion of changes in real wages should differ greatly between periods of high and low inflation. A period of high inflation would allow an unconstrained distribution of real wage changes: an employer that gave a 0 or 1 percent increase would in fact be cutting real pay. But in a period of low inflation, failure to reduce nominal wages would produce a truncated distribution of changes in real wages, with too few workers experiencing sizable drops in real wages. Using panel data on hourly paid workers in the CPS and PSID, David and Dean compare the dispersion of real wage changes over various periods with differing levels of inflation. Yes, they find spikes in nominal wage changes at zero that seem best explained by the hypothesis that real wage cuts were limited by nominal wage rigidity, and yes, the proportion of observations at the zero spike falls with the level of inflation. But the magnitude of the effect appears to be weaker than strong adherents of the notion that we need inflation to grease the wheels of adjustment might have liked. Perhaps the effect of inflation on real wage flexibility is less than David anticipated as well. But, as I noted at the outset, the empiricist sets up his study and reports his results.

Techniques and Data

The believability of empirical findings depends on the way the investigator develops them. Sometimes this requires finding the right data or natural experiment. Sometimes it requires sophisticated econometrics. Sometimes it requires the researcher to simplify theories developed with little attention to the 178 Journal of EconomicPerspectives requirements of data. Sometimes it requires imaginative use of existing data sets.

Sometimes it requires developing new data. It always requires detailed knowledge of the ins and outs of the data, which involves considerable investment of time and effort, often on mundane and intrinsically unexciting things.

David is a master of all of these modes of empirical analysis. In his work he has used many different data sets, ranging from the CPS and PSID, to U.S. Censuses of Population, to the Canadian Labor Force Survey data, to bargaining pairs in Canadian collective bargaining contracts, to surveys of workplaces in New Jersey/ Pennsylvania, to 1880s strike data, and many more. More often than not, he uses longitudinal data so as to eliminate the fixed effects that can alwaysconfound crosssection analysis. In the papers I like best, he finds the right experiment and uses relatively little econometrics to tell the basic story (the Mariel boatlift paper, some of the minimum wage papers). If you have the right "pseudo-experiment," simply comparing summary statistics gives the answer. In other work, the econometrics is more central, because there are problems of heterogeneity or selectivity or measurement error and factors that must be controlled for to isolate the behavior of interest. In either type of paper, the analysis is carried out with consummate skill and attention to the details, where truth is often found.

But Will He Get to Heaven?

One of the virtues of writing an honorary is the freedom to say something about that person's personal characteristics. It is a pleasure to report to those of you who do not know David Card that not only is he an outstanding economist, but he also stands high in the world of human beings.

True, he drinks (lots of coffee). True, he has interests outside of economics (he watches Pinkyand theBrain on Saturdaymorning TV). True, he's been to Graceland (among other cultural high spots throughout the world). True, he journeys often to Canada (and other exciting tourist paradises). These flaws aside, however, he has the attributes that you'd like in a friend, relative, colleague or teacher. His mentors and colleagues swear by him. His coauthors (of which there are many) swear by him. Perhaps more importantly, his graduate students swear by him, not at him, even after he has signed their dissertations.

In the United Kingdom, the biggest compliment one can pay a fellow economist is to say that you'd like to write a paper on something really important with him or her and then go to a pub afterwards.Hey David, next time you're in London, how about working on...? Then heading to the Slug and Lettuceor Frog and Toad or, better yet, The InvisibleHand? David is a counterexample to yet another bit of

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