A study conducted by Card and Krueger (1994) compared the employment of fast foo
ID: 2495623 • Letter: A
Question
A study conducted by Card and Krueger (1994) compared the employment of fast food restaurant workers in New Jersey and Pennsylvania a few months before and a few months after New Jersey passed a law increasing the minimum wage in that state. This was a "difference-in-differences" study: they compared the change in employment in New Jersey restaurants before and after the date of New Jersey's minimum wage increase, with the change in employment during the same period in Pennsylvania. Explain why the authors compared the change in employment in both states, instead of just looking at the before-after change in employment in New Jersey, where the minimum wage was increased. How does collecting data on what happened in a neighboring state that did not increase the minimum wage help us understand the effects of New Jersey's minimum wage Card and Krueger found that employment in New Jersey's fast food industry increased relative to Pennsylvania's fast food industry after the increase in the minimum wage. Explain what the perfectly competitive labor markets theory would predict that would happen to employment when there is an increase in the minimum wage. Does Card and Krueger's finding support or contradict the theory Explain at least one possible explanation for why the difference-in-differences strategy implemented by Card and Krueger for estimating the effects of the minimum wage could be problematic.Explanation / Answer
a) As stated this was a kind of 'differnce in differences' study which signifies changes occurred in differences in comparison from one situation/time to another.
The change in employment from one time to another time was compared of two areas because it kay be possible that one state may influence the other state's employment. As New Jersey increased the minimum wages, with labor mobility, labors would have migrated to New Jersey as well which would have influenced the later employment of other state.
If we would have studied the change in employment in New Jersey only we would had conclude that because of rise in minimum wage the labor participation rate of New Jersey has risen from the percentage increase in employment in the stae. But as we had measured neighboring state's employment as well that might had showed a decrease labor participation (although no change occured in minimum wage). This signifies that it might happen that some increment in labor participation in New Jersey would have because of migration from other state.
b) As increase in minimum wage there would have been more supply of labor that would result more increase in employmnet in New Jersey than Pennyslvania. Yes the finding supports the theory.
c) Such study had failed to control exogenous variables like weather and macroeconomics conditions of the states.
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