Alan Krueger, a friend and a source of inspiration for the OECD

by Laurence Boone, OECD Chief Economist, Giuseppe Nicoletti, Head of Division and Cyrille Schwellnus, Senior Economist, OECD Economics Department

A great economist, Alan Krueger, left us and the OECD Economics Department has lost a friend and a source of inspiration. Alan, a Princeton economist and former Chairman of the US Council of Economic Advisors, strongly influenced our thinking by spearheading a more evidence-based approach to economic policy-making both in his academic writings and as the Chairman of the OECD’s Economic Policy Committee during 2012-13.

One area in
which Alan’s academic work contributed to a rethink of the OECD’s policy advice
is the minimum wage. The original OECD Jobs Strategy of 1994 stated that minimum
wages often “end up damaging employment opportunities for unskilled labour”.
The wave of empirical studies sparked by Alan’s 1993 study with David Card on
the employment effects of minimum wages contributed to the more nuanced view in
the Jobs Strategy of 2006 that “a moderate legal minimum wage generally does
not undermine employment” and the explicit recommendation in the new 2018 Jobs
Strategy to “consider using a statutory minimum wage set at a moderate
level as a tool to raise wages at the bottom of the wage ladder, while avoiding
that it prices low-skilled workers out of jobs”. In their study, Alan and David Card use the
“natural experiment” of a moderate minimum wage increase in New Jersey in 1992,
showing that it had no effect on employment growth in fast-food restaurants
relative to neighbouring Pennsylvania where minimum wages had remained
unchanged at previous New Jersey levels.

Beyond triggering
a rethink of the OECD’s policy advice, Alan’s approach of using individual-level
data, “natural experiments” of policy reforms and differences in pre- and
post-reform developments in reformed and non-reformed areas contributed to a
paradigm shift in the way the OECD conducts empirical research. Classical
studies such his study
with Joshua Angrist using the quarter of birth as an instrumental
variable for years of schooling to estimate returns to education or the
estimation of the effect
of class size on student performance using experimental data demonstrated
the limitations of existing research on these long-standing and highly
policy-relevant questions. Today, much OECD research is based on individual-level
data and research designs inspired by these papers.

Alan’s work also sparked entire work programmes at the OECD.
His 1997
study with Joern-Steffen Pischke on the US employment miracle suggested
that higher labour market flexibility compared with European countries alone
could not explain its superior employment performance. They conjectured that
product market constraints contributed to low employment growth in many
countries, which motivated a major
OECD project that analysed the product and labour market interactions.
As a chairman of the OECD’s Economic Policy Committee, Alan popularised the
notion of the “Great
Gatsby curve” – which was partly based on OECD inequality estimates
– suggesting that higher income inequality in one generation constrains the
ability of people in the next generation to move up the economic ladder. This
consideration has contributed to the OECD refocusing its policy advice towards
a more inclusive growth model and a broader sharing of productivity gains.
Finally, Alan’s ideas on the importance of subjective well-being were
influential in the context of the OECD reflection on how to go beyond
GDP in measuring what counts for social and economic performance.

The OECD’s current research programme is testament to Alan’s
continuing influence. His recent work was concerned with the rise of
platform-intermediated work arrangements and analysed their effects on
productivity and whether they warranted a rethink
of labour market regulations and social protection. At the 2018
Jackson Hole conference, he also raised the issue of the macroeconomic implications
of employer
labour market power, highlighting the role of employer concentration
and anti-competitive practices such as non-compete clauses and anti-poaching
agreements. His work has not only been instrumental in putting remedies to
inequality issues in the spotlight but also helped disseminate them across
countries, putting  these issues high on
the OECD’s agenda. His undogmatic, evidence-based approach to policy advice
will provide guidance for years to come.