With justification, Israel did not take credit for the Nobel Prize in Economic Sciences awarded this week to Prof. Joshua Angrist. Although he speaks Hebrew, is married to an Israeli woman and was on the faculty of Hebrew University in the mid-1990s – the years in which he published the papers for which he received the prize – his education is not a product of Israel.
Angrist was born and grew up in the United States, immigrated to Israel and returned to the U.S. to do his Ph.D. at Princeton. The publication of his important research papers in Israel stemmed from his doctoral dissertation and his collaboration with a researcher from abroad, Guido Imbens, who shared the Nobel Prize with Angrist. (David Card was the other recipient for work on a separate project.)
In 1996, after about 10 years of back-and-forth travel, Angrist moved back to the United States. He left his post at Hebrew U.’s Department of Economics for a dream job at MIT. In the past few days, that move has been interpreted as an Israeli failure. According to Prof. Omer Moav, who taught economics at the Hebrew University alongside Angrist, the reason for this is the egalitarian wage policy in Israel: A professor of linguistics and an in-demand professor of economics or computer science, for instance, are paid the same salary, which leads to a brain drain.
Angrist himself was quoted in a 2006 Jerusalem Post article about the impact of organized work and fixed pay grades as saying, “I was tired of the situation here. The Israeli system does not reflect the reality of pay differential by field. It’s the public system, and it’s not very flexible.” Angrist said he was frustrated that many salaries, particularly in academia, were set using fixed pay grades, instead of wages being set by market forces as they are elsewhere. “Talented people who might like to work in Israel have to pay a high price for that financially,” he said.
‘An offer that couldn’t be refused’
“I felt poor when I was in academia in Israel,” says Angrist, speaking frankly in a Zoom interview following the announcement in Stockholm. “But that may have been due to the fact that I was still a young professor then. In any event, I had good years in Israel, and the papers I published in Israel were among the best I wrote. I very much enjoyed doing research in Israel, such as the studies I conducted together with Prof. Victor Lavy, or my study of the Palestinian labor market.”
Lavy, a Hebrew University professor on the economics of education, says today that Angrist is right in his critique of the salary inflexibility in Israel and that this is indeed causing a brain drain – though this was not the case with Angrist. “His doctoral dissertation was brilliant, and in its wake he was offered a job at Harvard, but he preferred to return to Israel,” Lavy notes. “That is, until another offer for a tenured position with marvelous conditions arrived from MIT. That was simply an offer that couldn’t be refused.”
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Angrist has already internalized his new status as a Nobel laureate. He is getting personalized PR services from MIT and has learned to be cautious about what he says. Thus, from the outset he explains that he “doesn’t want to talk about political issues.”
Asked about broader topics, such as whether he thinks the neoliberal approach is still relevant in the current era of high government involvement in the economy, he refuses to answer. “I have political opinions, like everyone else, but my opinions are exactly as important as the opinions of everyone else.”
Angrist says one of the things he is most proud of is his applied research in the realms of labor economics and the economics of education – but they are not the reason he was awarded the Nobel Prize. He won for his methodological studies, which deal with how research should be carried out: What are the right methods for conducting research in the social sciences?
Angrist’s contribution was enormous, Lavy says; studies in the social sciences before him and after his advent don’t look the same. From this perspective, his winning of the prize surprised no one. He is truly an economist who transformed the field of economics by making it possible for those in the profession – and for scholars in other branches of the social sciences – to conduct more accurate research.
Unlike in other sciences, it is impossible to conduct a controlled study in the social sciences. One example of a controlled study is the one done by the manufacturers of the anti-COVID vaccines. Some of the participants were inoculated with the vaccine, others received a placebo and, a while later, the results of the research group were compared with the results of the control group.
Angrist was proud to be part of the Moderna coronavirus vaccine trials.Angela Weiss / AFP
In our conversation, Angrist takes pride in having volunteered to take part in the Moderna vaccine clinical trial last year, but says that, regrettably, he was one of those who received the placebo. “It was important for me to tell my students I was taking part in that trial,” he adds.
An experiment along those lines is not possible in human society, however, in which governments set policy and revise it, but are unable to estimate the effects of their policy switch. In fact, governments can’t tell the difference between the control group, which wasn’t affected by the policy change, and the experimental group, which was in fact affected by it.
Angrist analyzed situations of policy revisions and, utilizing statistical tools, was able to identify the group that was affected by the new policy, and then to prove whether the policy succeeded or failed.
“A natural experiment,” Lavy explains, “is a situation in which there is an external event that creates a difference between groups of people, and we try to attribute the difference between them to that event. [Angrist] was one of the first in the world to identify the situation of a natural experiment, and he showed that it is possible to identify the target group and to distinguish between its members who were affected by the change, to characterize them and to measure the impact on them of that change. He built a methodology that makes it possible to interpret correctly the results of a natural experiment and to determine whether the natural experiment succeeded.”
Thus, in one of his first studies, Angrist succeeded in proving that the decision to extend compulsory education by two years (from 10 to 12 years) had in fact succeeded. On the face of it, a policy shift of that kind should reduce the dropout rate from the education system in the tenth grade. The impact of this policy is readily measurable, as the majority of the students would have continued in school for 12 years anyway, and only a small group of students increased their schooling from 10 to 12 years following the policy change. In his research, Angrist was able to identify that specific group, which was affected by the revised legislation.
Another study, which Angrist quotes – conducted with Lavy in Israel – dealt with the achievement of students based on class size. The purpose was to determine whether it was right to reduce class size in Israel. The data showed that in large, densely packed classes of 40 students, the achievements were better than in smaller classes. However, Angrist suspected that this was because the crowded classes existed in urban areas with stronger populations, hence their higher success rate.
Accordingly, he and Lavy looked for a natural experiment which would prove that class size – and not only the composition of the students – does indeed affect its rate of success. The natural experiment was found in situations in which classes had more than 40 students – in excess of the level permitted in Israel (he mentions that the limit of 40 students per class was set by Maimonides) – and that if the large class is split into two smaller classes, the success of the two classes outstrips that of the large class. That constituted the overwhelming proof that reducing class size does in fact contribute to educational achievement.
“We had to find a way to answer the question of whether it was worth investing resources in reducing class size,” Angrist explains. “To that end, we had to overcome the problem of selection bias stemming from the differences in the populations between the classes. We solved it when we found situations of split classes. That is my specialty: Finding the circumstances that enable us to conduct a supposed clinical experiment with a clear control group.”
Work by Angrist and Lavy showed that the educational benefit is worth the investment to reduce class sizes.Gil Eliahu
‘No economist questions the award’
Another important study by Angrist dealt with the Palestinian labor market, and here too he discerned a natural experiment.
“I was the first researcher who received the labor market data of the Palestinians,” Angrist recounts. They were the last economic data before the establishment of the Palestinian Authority, which Israel had been collecting in the territories via quarterly surveys since 1967. According to Angrist, the data made it possible to examine the impact of changing employment opportunities for the Palestinians in Israel – once more a hot topic as Israel is again issuing thousands of work permits to Gazans, and with Prime Minister Naftali Bennett talking about economic opportunities as a means to improve the Palestinians’ conditions without establishing an independent state.
The disparity in wages between work in Israel and identical work in the occupied territories (Gaza Strip and West Bank) was 18 percent in 1981 and zero in 1984, before surging to 37 percent in 1989. The natural experiment in this case was the security restrictions on the entry of workers into Israel: they allowed Angrist to measure the flexibility of the demand for work of Palestinians in Israel.
Israeli employers, Angrist says, had a large incentive to find alternatives for Palestinian workers – and they did so by using migrant laborers from other countries. Thus, the shock of the diminished supply of Palestinian workers in security circumstances was mitigated.
Angrist concluded that the increase in the wages paid to Palestinians working in Israel after the Gulf War (1991) stemmed from the economic growth in Israel. On the other hand, wages ceased to grow after 1995, when labor migrants started to arrive and the supply pressure on employers declined. Another finding of the study showed that improved education among Gazans produced higher wages.
Palestinian laborers undergoing a health test as they return to the West Bank in August.MUSSA ISSA QAWASMA / REUTERS
Discussing the results of the experiment, Angrist says it’s difficult to decide whether Israel should increase the number of Palestinian workers. They of course enjoy a wage premium, and Israel benefits from skilled workers – who are also cheaper compared to others. However, all this comes with high costs: long commutes, personal risk and delays for workers, and uncertainty for employers, who don’t know whether the workers will arrive as scheduled due to travel restrictions and lockdowns.
Angrist also examined the impact of the investment by Mifal Hapayis national lottery in installing computers in schools on the performance of those schools. Mifal Hapayis was supposed to choose the schools according to certain criteria, but of course pressures were brought to bear, with the result being that schools that were not meant to be computerized were included in the project. This “contaminated” the sample and made it difficult to evaluate the effects.
“There is no serious empirical sphere in economics during the past 25 years that hasn’t been affected by his work,” Lavy sums up, eagerly suggesting that Angrist should have been awarded the Nobel many years ago.
“No economist in the world questions this prize,” Lavy says. Angrist says modestly that he is proud to have won the prize.
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