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5 Questions for: David Card

June 12, 2013
Photo of David Card

1. In 1994 you published a study with Alan Krueger that found that raising the minimum wage would not create higher unemployment. Given the more recent economy and the growing number of fast food and retail workers demanding a $15 per hour wage, do you believe your findings from 20 years ago still apply?

David Card: Currently the federal minimum wage is $7.25. So a rise to $15 would be more than a 100 percent increase in the minimum. Our New Jersey-Pennsylvania study focused on a 19 percent rise in the minimum wage (from $4.25 to $5.05). I don’t think one can extrapolate from a 19 percent rise to a 107 percent rise. In fact, faced with a $15 minimum wage, I suspect that employers in many low-wage areas of the country would simply refuse to comply. Realistically there is not much chance of more than a 25 or 30 percent rise in the minimum. For that range of increase I think our results would still be relevant. In fact, a number of studies since our work have confirmed our finding that the employment losses associated with a modest rise in the minimum wage are barely detectable.

2. You’ve said before that the decline in labor unions over the last 30 years has played a role in increasing income inequality, at least for men. Can you elaborate on that?

There are two important factors that cause lower inequality among unionized workers. First, unions tend to negotiate wage scales that raise wages a little more for the lowest-paid workers and a bit less for the highest-paid workers. In other words, unions’ wage scales are “equalizing” relative to the non-union sector.

Second, men whose wages are set by unions generally come from the middle of the wage distribution. As unions have declined and workers have shifted from union to non-union jobs, lower-paid workers have lost more.

Among female workers a much larger fraction of union jobs are concentrated in relatively high-paying jobs like teaching and nursing. To the extent that unions raise wages for these workers (which they do) they actually widen wage inequality a little bit (since they are on average raising wages for people who are already relatively highly paid).

3. Recent studies have speculated that Obama’s Affordable Care Act will encourage employers in low-wage industries to reduce employee hours to avoid offering health benefits. Do you think this is likely?

Even before the new law, firms that offered tax-free benefits like health insurance were supposed to offer them to all full-time employees. They could make an exemption for part-time workers, and many companies made extensive use of this exemption. The new law requires larger employers to offer health insurance to employees who work 30 or more hours per week. There are already anecdotal reports of employers issuing rules to keep hours under 30 per week, and I suspect this will be very widespread, given how common it was to not pay benefits for part-timers before the Affordable Care Act.

4. Last October it was reported that college students graduated with an average of $26,600 in student loan debt. The total amount recently exceeded $1 trillion. Do you believe a college degree is still a smart investment for students?

Yes. The percentage difference in annual earnings between young adults with a college degree versus those with only high school [educations] who are working full time is currently around 50–60 percent (e.g., $50,000 per year versus $33,000 for young men; $40,000 versus $25,000 for young women). While this gap is a little smaller than it was just before the recession, it is important to remember that college grads are also more likely to be working (and working full time) than high school grads. So even though the cost of a college education has risen, the payoffs to completing college are very high.

More importantly, looking ahead I am not very optimistic about the job prospects for people with only a high school education. Of course, some people can do very well with only a high school education, but the set of jobs that are available is shrinking, and more and more employers are looking for the extra skills and demonstrated ability to “bear down” that come with a college degree.

5. You’ve also said that the ratio between college students whose parents have advanced degrees and those who don’t, even at Berkeley, has been widening. What does this mean for the future?

There are a couple of important trends here. One is that the degree to which a person’s success is linked to the success of their parents seems to be increasing. While we often boast about the ability of people from modest family backgrounds to succeed in the United States, in actual fact the link between parents and children is stronger here than in many other countries. And this “intergenerational” link seems to be rising. One factor behind this trend could be the increasing effort by richer parents to enhance their children’s success—by investing in their early childhood experiences and their ultimate education.

A second trend is the increasing importance of post-graduate education in securing a high income. The wage gap between people with master’s level education and a B.A. has widened a lot, as has the gap between people with a doctoral level and those with a B.A.

Putting these two together, I expect to see a widening gap between people whose parents had lower levels of education and those whose parents have higher levels of education. My impression is that, in fact, the fraction of Ph.D. students at top schools like Berkeley whose parents have very high levels of education (Ph.D.s, medical and law degrees) is growing. But I have not actually tried to systematically collect the data on that.

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