Alan Krueger, natural talent

FEW ECONOMISTS can claim either to have successfully challenged the bedrock beliefs of their field or to have altered how governments pursue policies that affect millions. Alan Krueger, who died on March 16th, managed both. In research with David Card in the early 1990s, Mr Krueger showed, through careful data analysis, that increases in the minimum wage did not lead to reductions in employment, as standard models suggested they should. The research, which the authors summarised in a seminal book, “Myth and Measurement”, published in 1995, drew a scathing initial response. Critics assaulted their motivations, data and analysis until allowing, finally, that the pair had a point. Their work changed economics and politics. It also exemplified Mr Krueger’s career as both scholar and public servant.

Mr Krueger did not come across as the combative type. He was gracious and generous in person, and a skilled communicator. That came in handy during his time in Washington, as chief economist of the Department of Labour when Bill Clinton was president, and in the Treasury and the White House under Barack Obama during the most tumultuous economic times since the 1930s. He often wrote for the New York Times and appeared on television. Helping people understand what economists had learned was, he believed, part of an economist’s job.

His passion, however, was the craft of economics. In 1987, as a newly minted PhD, Mr Krueger accepted a position at Princeton University, not far from the New Jersey town where he grew up. From the outset he was interested in understanding why workers earned what they did. But he recognised that the question could not be answered satisfactorily without rigorous and careful study of data. Mr Krueger subscribed to the New England Journal of Medicine, and admired the way each article began by discussing the paper’s research design. Economics badly lagged behind medicine and the physical sciences in the use of careful empirical work, not least because of the difficulty of running experiments on messy real-world interactions. In the late 1980s, however, some economists were honing methods to study “natural experiments”, in which a more or less random, localised event allowed researchers to compare the experiences of affected and unaffected groups, in something of the way that a laboratory scientist might compare treatment and control groups.

Messrs Card and Krueger applied the approach to studying the effects of changes in the minimum wage. At the time most economists assumed that labour markets were more or less competitive. Workers could easily leave firms that offered them too little; firms had to accept prevailing market wages and would only hire as many workers as made financial sense. An increase in the minimum wage, by making labour more expensive, should thus translate directly into lower employment. But did it? Beginning in the early 1980s, increases in America’s national minimum wage were infrequent and too small to overcome the effects of inflation. Some states responded by raising their own minimum rates, creating just the natural experiment Messrs Card and Krueger needed. They studied the effect of a rise in New Jersey’s minimum wage in 1992 on employment in fast-food restaurants, using neighbouring Pennsylvania, which had not enacted an increase, as a comparator. They did not detect any negative effect on employment.

Though arguments about this research rumbled on for years, its impact has been undeniable. It opened the floodgates to a wave of work with natural experiments. It also stirred debate about competition in labour markets, to which Mr Krueger would contribute for the rest of his life. Markets might not be very competitive at all, some economists reckoned, because it is costly for workers to find and switch jobs, or because large firms dominate markets or collude to suppress pay. In a talk last August, Mr Krueger cited a stream of recent research in arguing that stubbornly weak wage growth is strong evidence that workers have too little bargaining power, and that the economy is suffering as a result. It is wrong to label such dynamics “market imperfections”, he mused. As Mr Krueger pointed out, Adam Smith himself thought labour markets worked that way.

A repertoire full of tunes

Mr Krueger’s papers explored how factors from education to race to technology influenced workers’ prospects, often rustling up new data sources in the process. He drew a link between America’s opioid-addiction crisis and declining participation in the labour market, especially among men. He made a habit of attending a festival for twins with Orley Ashenfelter, a mentor and Princeton colleague, to seek subjects for studies of the influence of education on earnings, using genetic similarities to isolate the effect. Mr Krueger’s curiosity was insatiable. He published on a remarkable variety of topics. After the attacks of September 11th 2001, he explored the factors contributing to the decision to become a terrorist. In a book in 2007 he argued that political repression, rather than a dearth of economic opportunity, did most to foment terrorism. He studied the entertainment industry, to understand how technology and globalisation are affecting the economics of popular music (another passion): a book is due out in June.

And, often in partnership with Daniel Kahneman, a Nobel laureate who pioneered the application of psychology to economics, Mr Krueger dug into the measurement of subjective well-being, hoping to find better ways of capturing shifts in what matters most in life (see article). The goal of economic progress is after all to help people lead more satisfying lives, and to foster its pursuit, governments and scholars need reliable data. It was a message he preached throughout his career. His professional example inspired scores of young scholars, whose work is a monument to his memory. Both economics and American public life are much poorer for his death.

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