This Year’s Nobel Prize Is Going To Change Everything... | Economics Explained 

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"I used to think that correlation = causation. Then I took a logic class, and I no longer think that." "So the class helped?" "Well, maybe."

I’ll be honest I was expecting a bit more of an explanation on how, “this will change everything.” I need some more explanation on the effects of these studies other than they’ll effect policy.

I know this question could probably be shot down pretty fast but it's why I am asking it. In Angris's study on the causal relationships, he decided to use conscripts in the Vietnam war. But the draft had exemptions. One of the most important exemptions was if you were in college. Later this exemption was changed to draft those in college as well but based off of their rank/grades. So those who were completely free of the draft were those highest in their class. Would that not have affected the results?

The study of Vietnam draftees' lifetime earnings might be missing one important variable. A lot of more wealthy families found ways to get their children out of being drafted. Either through education exemptions or just good ol' bribery.

You spent like an 1/8th of the video actually explaining the Nobel winner's theory...

There's a misconception about David Card's paper. He won the prize because of the innovative method he used not for the results. In Spain the central bank used the same method in 2018 along with other methods to prove the rise of minimum wage killed more than 75k works. This is because amount of work depends on a ton of facts not only minimum wage, but it's a really heavy part of the equation.

Not to be facetious but this comes across as: economists using proper controls is grounds for a Nobel prize...

This is a gross misinterpretation of his work. It 100% isn’t some proof that minimum wage doesn’t effect employment like you make it out to be. Infact, he himself doesn’t even claim it does. Several studies were made afterwards using the same populations that achieved opposite conclusions. Basically, it’s still an unanswered question. He won the prize for his practical application of statistics and sampling methods within his field of labour economics and minimum wage. Not as some sort of pat on the back for proving minimum wage doesn’t affect employment.

I remember a story told by my former boss and mentor. He was setting up a chain of restaurants in China and had hired a local outfit to help him construct them. When he arrived at the site he was impressed by the sheer number of workes there and that they all used hand tools. He asked the manager why that was and got the reply "power tools cost 200 dollars, hourly rate is 1 dollar".

Let's just make one thing clear: This is NOT a bona fide Nobel Prize and it has nothing to do with the Nobel Prize Committee. Indeed the Nobel family has protested vociferously against the use of their good name in this 'prize'. This is the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. It is handed out by a committee of the Swedish Central Bank.

A more important concern: Does raising the minimum wage increase the percentage of people working at the minimum wage and are those working at a minimum wage level see an increase to their cost of living smaller or greater than their wage increase?

If, as an Academic Economist. you can propose a convincing enough theory governments can use to create something from nothing, you bagged that Nobel Prize!!!

"Powerful computers to crunch huge datasets" - Shows blurry image of a Commodore 64. 😆

The study about minimum wage doesn't sit right with me. Seems like something is missing. There should be some kind of threshold where wages are actually too high and can affect business profitability. The wage increase in the study was very minor and businesses would generally have the ability to absorb the cost. Secondly that study almost seems unnecessary. Generally there already should be employment data available during and after minimum wages have been increased all over the country.

"In 1888, Nobel was astonished to read his own obituary, titled "The merchant of death is dead", in a French newspaper. It was Alfred's brother Ludvig who had died; the obituary was eight years premature. The article disconcerted Nobel and made him apprehensive about how he would be remembered." The reason Nobel created the prizes wasn't because his *conscience* bothered him, he created them when he saw what people really thought of him and the way he made his fortune.

Did the Nobel Prize committee ever issue a retraction after a Peace Prize recipient launched more than 500 air strikes?

Skip to 7:13 to hear about this year's winners. Everything before then is just intro and a long-winded product advertisement. Seven minutes!

The Nobel prize for economics shouldn’t even exist

I feel like not researching and attempting to explain the why behind a lot of these just creates more skepticism. Like your analogy of the ice cream and drowning, these researchers could show that raising wages didn't affect job openings in those areas, but without diving into the why there is too much room for hidden variables that politicians should be aware of before creating laws around this research.

If you have an 8th grade education skip to 7:20. If you can name any Australian school economist, skip entire video. Like MMT this is faith based approach to science.

Man I think there's still hidden variables there ,many soldiers where picked out and draft because of either low economic background or for low training/skills

I know several business owners who had to fire some employees when minimum wage went up. Hard to beleive that wouldn't happen on the whole.

-Professional economists being rewarded after sitting through countless data and being peer reviewed by other professionals -Random schmucks who do not like the results: ThEy WrOnG

If Jerome Powell doesn’t get it for printing more money than anyone thought possible we should riot

9:30 Could someone that supports the conclusion of this study please explain: The study seemed to ignore the fact that the law in question allowed employers to pay less than the minimum wage for training rates. The paper's own results shown in Table 9 showed that NJ showed reduced employment in the age group of "25 and older" over the study period, whereas the same magnitude of change was not present for the "control" being Pa, nor for NY. How can this be ignored when their conclusions are drawn from measure of equivalent full-time hours, which is a measurement that disregards whether or not those employees being counted are actually being paid the minimum wage? The reason this seems important to me is that the reduction in employees in the older age bracket in NJ suggests that the companies increased their number of entry-level positions by reducing the positions available to older staff who would have been the ones ACTUALLY receiving the full minimum wage (and not on a reduced training wage). I'm Australian, and this practice seems very similar to how large fast food chains like McDonalds operate here today:- they employ a large number of very young casual staff, break down the tasks into very simple micro-tasks to maximise productivity with a minimum level of training, and then find new employees to replace the older ones when the older ones are actually able to receive a full wage. In my current mind, there is no way the above manipulation could be used to justify a widespread notion that increasing minimum wage actually "increases" employment.

Re: the Card-Krueger paper, he didn't establish that there was no impact of minimum wage on labor markets, but that the particular minimum wage increase in New Jersey didn't impact labor markets. If the minimum price for new cars in my state is $10000, and that floor is raised to $15000, there also would be no discernible impact, because the market price is already far above the $15000 mark. Raising the legal minimum wage to a market-consonant minimum wage is a great way to boost voter popularity without actually doing anything, and every elected official knows it.

That "Ignore air friction " part cracked me up 😆

Wanna hear a sad joke? The Nobel Peace Prize.

Okay, so higher minimum wages dont mean less jobs, good to know. But here's my question, which I personally feel is more important. Does minimum wage affect inflation? Because it doesn't matter much that as a californian I make $15 an hour when renting 1 bedroom for $1000 a month is considered cheap.

I nominate EE for the Nobel Prize in Economics for introducing economics to the general public in a fun and interesting way! Also: #TEAMSEAS

I'll save you 17 minutes. Summary: Recent Nobel Prizes in Economics have been mostly awarded to discoveries tried and worked in real life, rather than untested mathematical models. This year's prizes are awarded to 3 economists for 2 contributions. David Card was awarded "for his empirical contributions to labour economics". One example is "Minimum wages and employment: A case study of the fast food industry in New Jersey and Pennsylvania" (Card, Krueger, 1993). In this paper, he found that minimum wage increase in New Jersey did not decrease employment in the fast food industry, compared to nearby Pennsylvania (picture at 10:04). Joshua Angrist and Guido Imbens were awarded "for their methodological contributions to the analysis of causal relationships". Their main technique is "instrumental variable estimation", used to discover causation (not just correlation). To use this, one either performs a randomized trial or find a natural equivalent of it (called a "natural experiment"). The example given in the video is the American draft in the Vietnam War, which effectively was a randomized trial where able-bodied American men was randomly chosen to enter military service. The result was that the Vietnam war veterans were earning $400/year less than their peers who did not go to Vietnam War, giving strong evidence that military service causes lower lifetime earning. "Lifetime earnings and the Vietnam era draft lottery: evidence from social security administrative records" (Angrist 1990)

Please correct the title of the video: there is no such thing as a Nobel Prize in economics! The five Nobel prizes are for Physics, Chemistry, Physiology or Medicine, Literature and Peace. Sveriges Riksbank's annual prize in economics has no connection whatsoever with Alfred Nobel or his legacy. They are only abusing his name to add prestige to the prize.

I'm gonna have to call BS. The worry for high minimum wages was never that it would decrease the amount of people working globally, but rather that it would cause the jobs to move away. Of course this would not apply to local fast food places, they can't move away. To convince me, you would have to show me the same thing, but instead of fast food, something that is not tied to the local area, like a factory. This just feels really cherry picked, and then he got a Nobel Prize for the same reason Obama did, the people giving out the prizes have a political agenda.

I like that a lot of your stock videos are Ukrainian. One of them even had a friend of mine, lol

I think its important that its a study that challenges assumptions. It's very sexy to find out "this causes that" and those findings get lots of exposure, but studies that find "this is unrelated to that" don't really get out and are really unintuitive are to study

after Nobel prize was given to likes of B. Obama and Yasser Arafat it lost all credibility

The amount of refutation that this nobel prize will deal is just huge.

Judeah Pearl pioneered and popularized causal methods long before these two. Also, people got drafted during Vietnam War because they didn't have student deferments. Student deferment enabled one to get a college degree and thus earn more money.

Card analyzed one specific real world cenario. It does not, however, imply that minimum wage has no impact on employment levels.

I personally think that the argument and statistics are not valid ,the fact that employment wasn’t affected by the rise in minimum wage doesn’t prove anything because the study was firstly focused on fast food chain’s (resources to handle the increase on wages unlike small businesses ) and secondly other sectors of the economy could be affected differently by an increase in the minimum wage (thinking about factories that could reallocate) and a lot of other factors that I have in mind .Tell me what you think,Econ is sometimes complicated and not everything seems straightforward .

minimum wage has no effect? Great news, why not make it 1 Milion!

Some of the best economists the world: _(study for decades, write a ton of peer reviewed papers, conduct massive studies, use advanced methods to analyse the data, finally win the nobel prize)_ Some random guy in this comment section: "Well that's just some SJW bullshit"

Correct me if I'm wrong...but one of the problems with the study looking at fast food restaurants and minimum wages is that it totally ignores small business, which actually make up something like 44% of the US economy. Just throwing that out there.

I remember they gave Obama the Nobel Prize for things he wanted to do. He really didn't accomplish much of anything. I lost my faith in the Nobel Prize after that.........

The companies example in my opinion is a little off because fast food chains don't really have problems with minimum wage but small businesses get hurt the most.

Should go to Satoshi Nakamoto

Lots of flaws with this labor study: 1) the higher artificial wages create inflation, which raises the cost of living and brings the individuals back to square one in purchasing power, and a higher cost for everyone else. 2) in NJ the market wage was probably already higher than or close to the new minimum wage, having little effect. 3) it was a VERY narrowly focused study on just one location and one type of job (out of thousands of different types). With a ton of variables involved that can compensate for the negative economic effects of the wage increase.

Here's the thing. Raising minimum wage does reduce employment. It just hasn't reached high enough to where you see that happen on a noticeable level. What usually happens is businesess will just raise their prices to pay for increased pay

For instrumental variables I can explain in an introductory way (assuming intro stats background) via the following: In regression , suppose we want to know the relationship between two variables (x,z) with output (y). We may want to learn a regression function that looks like: y = a + b*x + c*z, so we want to learn the values of the coefficients (a,b,c) to better study the (x,z) --> (y) // (input) --> (output) relationship. However the typical learning for this hinges on the assumption that x, and z have not relationship between one another. That they are independent of one another, so that there is a direct "causal link", from x-->y, and z ---> y individually. This picture looks something like: x - - -> y < - - - z Notice no connection between "x" and "z". However, it is entirely possible that there is a hidden relationship in the form of z x, which can impact learning our learning problem of the relationship: (x,z) --> (y) // (input) --> (output) relationship. And in particular by "learning" we mean finding the "proper" or "correct" value of the coefficients (a,b,c) which correctly quantifies or models the relationship. Now how do we "prove" this, we introduce another variable, called the "instrumental variable", we can call this "i" It can look as follows: i ---> x ---> y ^ ^ |______| v z so there is a relationship between (x,z) assumed, and they both relate to "y", but we can isolate the effect of "x" by studying the relationship between "x" and "i" to see if it can isolate away "z". The method for doing so require some statistics, but that's the underlying motivation for instrumental variables, and the thought behind them. Now this is a good idea, but in practice, it can be found that the instrumental variables are a little "too weak", or sometimes the choice used is a little "bizarre", as we need to find an "i" such that we are sure it has no influence on "z", which in the real world is hard in of itself to verify. So it can be hard to find a good "instrument" Also there is a philosophical debate as to whether or not this really demonstrates "causality". For more thorough and deep understanding on this perspective I can refer you to Judea Pearl, "Book of Why". And I hope nothing is wrong! This is just from memory, but please correct me if I am wrong.

The problem with Card's research is that it still doesn't prove that there was no relationship between wages and unemployment. After raising the minimum wage in New Jersey and not raising it in Pennsylvania, we still don't know if there weren't any hidden variables. What if raising the minimum wage actually had an influence on increasing unemployment, but other variables have decreased it even more and thus the end result suggested no relationship? There is no way to control that kind of study unless we know all of the variables. Besides, what if we increased the minimum wage tenfold? Would we still see no relationship?

Isn’t there a flaw in looking at conscripts, namely that the more wealthy have a higher chance of dodging the draft or enlisting in an officer or non-combat role?

So you can seriously compare a grand total of TWO US STATES at ONE TIME IN HISTORY and that is considered worthy of a Nobel Prize?? How about you track 50+ different changes in minimum wages across MANY COUNTRIES/states and MANY PERIODS in History, and THEN see if there is a real connection there. That might be a piece of research that could actually be relied upon somewhat..

Vietnam study is also problematic because more affluent draftees could get an exemption for higher education, or just buy their way out of it

The thing with minimum wage is that many of those stores make so much money that they could easily pay double if not tripple the wage and still walk away with a decent chunk of money. A pizza place once decided to not take any extra money one single evening. The workers walked home with 78$ of hourly pay. Even if they were earning 15$ an hour, this is 5 times that. And if your store doesn't make enough without not paying your staff slave wages instead of actual income, then you shouldn't be in business.

If you had enough money you didn't get conscripted for the Vietnam War... Another variable.

We should be careful not to imply that causation can be definitely proven or unknowns disprove generally with this kind of analysis. It just gets more complicated. There is really no such thing as ever being sure (logically) that you know all of the dynamics and facts about a system from within; if anyone claims otherwise, they're being anti-scientific and risking failure to uncover truth.

Yeahh, ever since the committee gave *Obomber* the peace price the award has lost all/most of its luster

I just read about 'Skimpflation' and how it is hard to quantify and is unaccounted for by economists when analyzing inflation.

"In one instance raising the minimum wage a little bit did not decrease employment; therefore, raising minimum wage does not decrease employment." Absolutely ridiculous conclusion.

So the guy wanted to see if raising the minimum wage affected employment so he checked fast food chains. I was under the impression the argument against raising the minimum wage is that those that will be unaffected are the large corporations, the ones it hurts are the small local private businesses and young people who can't find a job because of a lack of experience. All he seems to have done is confirm that as more people are having to work for McDonalds. Great. What a hero 😐

The only guy that deserves nobel price for economics is Satoshi Nakamoto

I dont get the statistical methods point. Isnt it basically: if there is a hidden variable that u cant controll, find a way to control it. First the whole problem as far as i understand is that we dont know what are these hidden variables is such complex fields like economics. And didnt people try to control hard data for ages at this point? Why would the solution be: just find some data thats controlable.

I'm not sure that you've got cause and effect right on this one: A different take: Card got his prize because his theories are being applied. His theories are being applied because they are popular with economic interventionists. If they weren't they would being ripped to shreds because of obvious criticisms, such as hidden variable, the legal changes being too small to overwhelm other factors, the minimum wage being sufficiently small that they only apply to a subset of the workers, etc. I remember in this time frame being paid more than minimum wage as a temp summer worker of high school age. I got significantly above minimum for my job throughout my college years where I was able to set my hours around my class schedule.

Genuinely love that Krueger was purposefully not mentioned in this video

Did the study mention anything about how the cost of living in NJ tends to be higher than eastern PA?

The most undeserving award I’ve seen. The data used failed to appreciate multi-variate factors and hence is meaningless. The Nobel prize is becoming ideological and losing meritocracy.

Increasing price decreases demand .... Apple: Hold my beer

The problem with PhD economists today is that they are completely detached from the reality outside of their high society circles and upscale neighborhoods. The should try talking to real people in the real world for a change.

Obama winning the peace prize was the biggest joke ever.

We need to return to Austrian economics and restore precious metals as the backing of our money supply. This current trend of Keynesian economics will destroy the modern world as we know it. If you have any doubts all that you need to do is look at any nation in history that has debased their currency and look how that turned out for them. I'll take my Nobel prize now.

Because of higher wages factories are being moved from china to vietnam and cambodia. The method might be interesting but doesn’t prove anything on that small scale.

Very ironic that the Swedish Central Bank would give a reward to economists theorizing that minimum wage can be high and is not harmful, given that Sweden has no minimum wage at all.

And the Nobel prize for most stock footage used goes to… EE!

Found this far less satisfying than your other videos. For instance, minimum wage not effecting employment levels - the dude was only looking at larger employers. As someone who's run a small business I know for a fact I would have employed more people if minimum wage had been lower. The nobel prize doesn't convince me he's right.

I wish he hadn't said the Field's medal is about the same thing as a Nobel Prize. It wasn't designed for that (it was seen as a way to recognize young mathematical talent--the prize isn't given to anyone over the age of 35). The much, much newer Abel Prize is indeed a nobel prize for science.

I just want to say I love your channel and the information you provide. Thanks!

Why is it a good idea to have central banks independent? And can they really be independent? Turkey's Lira made me think of this. Could you please address this in a video if relevant? .. and keep up the good work! :)

Card won an economics prize for pointing out that economic theory isn't always correct. Isn't that the norm for economic theory?

minimum wage does not effect fast food because minimum wage benefits corporations by killing there competition is my counter argument.

Economics is not a science. Only some of it is testable hypotheses. It's mostly justification for policies.

Have these economists addressed skimpflation and regular old rises in prices when it comes to minimum wage?

you should do a video on how monetary policy can create inequality

My assumption has always been that if you join the military you're skipping a solid 4-6 years that you could be spending getting a college degree or work experience, that could have been used creating contacts and building a skill sets. Most military jobs are not in demand in the civilian sector and thus you have people working entry level jobs attempting to catch up with people of the same age group.

The reason economics is the dismal science is because the experiments can’t isolate the variables well enough to actually make good proofs of the various theories… the minimum wage theory papers didn’t not address enough of the other variables that could have had an impact on the studies results

Could the fact that they examined the number of employees in local chain restaurants, which would have a more standard number of employees per establishment due to the global cut and paste format of the companies have any effect on the lack of drop in employment in correlation with the higher minimum wage? I'm not an econ. genius or anything, but that seemed like a possible experimental error.

Legend has it Nobel's wife cheated on him with a Mathematician

David Card co-authored a paper that concluded: "We find a strong correlation between the risk of induction faced bv a cohort and the relative enrollment and completed education of men. Our estimates suggest that draft avoidance raised college attendance rates by 4-6 percentage points in the late 1960's, and raised the fraction of men born in the mid-1940's with a college degree by up to 2 percentage points." I can't believe the one example you cite is men conscripted during the Vietnam War.

The amount of work that one person can do varies wildly. The assumption that there is any rule to that is just fundamentally wrong.

Pennsylvania is not new Jersey. the conclusion of the study is little more than dressed up justification for assumption bias written onto data affected by so many variables that almost any angle is unfalsifiable. the people that select for who is in the running for and receives a Nobel Prize are of a specific kind not to mention that the pools they draw from are of a kind as well.

Why not then make the minimum wage $1000 an hour and make everyone happy? It would seem the economics Nobel prize has now also bowed to political ideology, just like the peace prize.

It seems to me that the award winning study, according to this EE analysis, does not show that raising minimum wage does not contribute to unemployment, but instead that New Jersey's raising of minimum wage from $4.25/hr to $5.05/hr in 1992 didn't cause a net decrease in employment in the three big fast food chains in comparison to restaurants belonging to the same chains in eastern Pennsylvania at that time.

Wages do affect employment, this video did not explain the title well. The award was probably for the statistical research rather than the result of the paper. This was done on a small local scale on 3 big companies. This cannot be applied to a larger scale

As a rule, I wouldn't take any papers so closely related to politics at face value.

Sincere question do you need land to create software products because theoretically I could just move from Starbucks to Starbucks with my laptop and not own or lease or do anything with my money to acquire said land

Can you get an ice cream company to sponsor your videos?

My question is whether an increase in minimum wage would negatively harm the ratio of small businesses to corporate franchises. I could imagine that even if jobs in total don't end up going down, the jobs would mostly be provided by the larger companies capable of affording the higher wages, while the smaller business would suffer.

When considering increasing wages, I honestly did not ever think about employment being an issue, as the whole reason everyone loses their minds about the increase is because those higher costs simply get passed on to the consumer. Sure, you might make $5 more an hour, but you spend far more than you did before too. Looking *only* at employment is kind of a red herring in my opinion. Seattle has some of the US's highest wages, yet also pays some of the highest costs for goods and services in the country. To drive my point home, I could move to rural Mississippi and almost every single expense would either halve or more instantly; the only struggle would of course be employment itself and either your own business or online work more or less provides better wages than most on-the-ground jobs could ever compete with.

Weren't military conscripts during the Vietnam war more likely to be from lower socio-economic backgrounds?

The problem with the Vietnam conscripts analysis as narrated is that it appears to take into account the numbers of children of wealth who either avoided conscription due to family connections, or had service deferred due to study, or had medical discharges due to connections and/or money moved in appropriate manners.