David Card is a labour economist and professor at UC Berkeley. A...
Tl;dr: This is a research summary of the paper from the Nobel pr...
The classic model of employment differs with the reality found from...
"This paper presents new evidence on the effect of minimum wages on...
There could be many explanations for the jump in employment followi...
State history of the minimum wage in New Jersey: ![Imgur](https://...
The authors will discuss more on the differences-in-differences met...
This would be an instance of survivorship bias, if they did not fol...
Choosing to study the fast-food industry was an important decision ...
Sample design and response rates. Key summary data.
More compelling reasons to choose this industry for their natural e...
Economics field research is interesting....: "we hired an interview...
"The average starting wage at fast-food restaurants in New Jersey i...
Key result: "The relative gain (the "difference in differences" of ...
"Difference in differences is a statistical technique used in econo...
"The results in Tables 3 and 4 seem to contradict the standard pred...
"As in the earlier study by Katz and Krueger (1992), our empirical ...
Important conclusion with non-intuitive findings that have real pol...
Minimum Wages and Employment:
Case Study of the Fast-Food Industry
in New Jersey and Pennsylvania
On April 1, 1992, New Jersey's minimum wage rose from $4.25 to $5.05 per
hour. To evaluate the impact of the law we surveyed 410 fast-food restaurants in
New Jersey and eastern Pennsylvania before and after the rise. Comparisons of
employment growth at stores in New Jersey and Pennsylvania (where the
minimum wage was constant) provide simple estimates of the effect of the higher
minimum wage. We also compare employment changes at stores in New Jersey
that were initially paying high wages (above $5) to the changes at lower-wage
stores. We
find no indication that the rise in the minimum wage reduced
employment. (JEL
530, 523)
How do employers in a low-wage labor cent studies that rely on a similar compara-
market respond to an increase in the mini-
tive methodology have failed to detect a
mum wage? The prediction from conven- negative employment effect of higher mini-
tional economic theory is unambiguous: a mum wages. Analyses of the 1990-1991 in-
rise in the minimum wage leads perfectly creases in the federal minimum wage
competitive employers to cut employment (Lawrence
Katz and Krueger, 1992; Card,
(George J. Stigler, 1946). Although studies
1992a) and of an earlier increase in the
in the 1970's based on aggregate teenage
minimum wage in California (Card, 1992b)
employment rates usually confirmed this
find no adverse employment impact.
prediction,' earlier studies based on com- of minimum-wage floors in Britain (Stephen
parisons of employment at affected and un- Machin and Alan Manning, 1994) reaches a
affected establishments often did not (e.g.,
similar conclusion.
Lester, 1960, 1964). Several re-
This paper presents new evidence on the
effect of minimum wages on
level employment outcomes. We analyze the
experiences of 410 fast-food restaurants in
*Department of Economics, Princeton University,
New Jersey and Pennsylvania following the
08544. We are grateful to the Institute
increase in New Jersey's minimum wage
for Research on Poverty, University of Wisconsin, for
from $4.25 to $5.05 per hour. Comparisons
partial financial support. Thanks to Orley Ashenfelter,
of employment, wages, and prices at stores
Charles Brown, Richard Lester, Gary Solon, two
anonymous referees, and seminar participants at
in New Jersey and Pennsylvania before and
Princeton, Michigan State, Texas
A&M, University of
after the rise offer a simple method for
Michigan, university of Pennsylvania, ~niversitJ of
evaluating the effects of the-minimum wage.
Chicago, and the NBER for comments and sugges-
~~~~~~i~~~~ within
tions. We also acknowledge the expert research assis-
tance of Susan Belden, Chris Burris, Geraldine Harris,
high-wage paying
and Jonathan Orszag.
than the new minimum rate prior to its
'see Charles Brown et al. (1982,1983) for surveys of
effective date) and other stores provide an
this literature. A recent update (Allison J. Wellington,
alternative estimate
the impact of the
1991) concludes that the employment effects of the
minimum wage are negative but small: a 10-percent
increase in the minimum is estimated to lower teenage
In addition to the simplicity of our empir-
employment rates by 0.06 percentage points.
ical methodology, several other features of