1. Card and Krueger (1994) study the effect of minimum wage on employ- ment . In
ID: 3054181 • Letter: 1
Question
1. Card and Krueger (1994) study the effect of minimum wage on employ- ment . In February 1992, New Jersey increased the minimum wage from S 4.25 to $5.05 while Pennsylvania's minimum wage stayed at $4.25. In New Jersey, employment in February was 2 Pennsylvania, emplyment in February was 23.33 and in November was 21.17 (a) In this study, which is the treatment group and which is the control group? (b) What are the outcomes of different groups before and after treatment? (c) How do you evaluate the effect of treatment? Discuss the result. (d) Would it be possible to estimate the treatment effect in (c) by running a regression? How would you design the regression model? 0.44 and in November was 21.03. InExplanation / Answer
Answer:
(a) In this study New Jersey is the treatment group and Pennsylvania is the control group.
(b) In the treatment group (New Jersey) due to the treatment (increase in minimum wage) the employment has increased by (((21.03-20.44)/20.44)*100) = 2.88% in november against the data of february.
In the control group (Pennsylvania) in the absence of treatment (increase in minimum wage) the employment has decreased by (((23.33-21.17)/23.33)*100) = 9.25%.
(c) The effect of treatment can be evaluated as -
since a rise in minimum wage of $0.8 in the treatment group (New jerssey) has impacted the employment level positively and employment has gone up by 2.88%.
a control group (Pennsylvania) did not receive any any treatment in terms of minimum wage hike and resulted in decrease in employment level.
so it can be concluded that minimum wage and employment level are associated to each other. a positive move in minimum wage may bring positive change in employment and negative move or no move in minimum wage may result negatively in employment level.
(d) A regression model can be designed to estimate the treatment effect the design is as follows
E = a + bW
where,
E = Employment level (Dependent Variable)
W = Minimum Wage (Independent Variable)
a,b = Constants
The model can be checked by using the following value -
Independent Variable (W) Dependent Variable (E) 4.25 20.44 4.25 23.33 4.25 21.17 5.05 21.03Related Questions
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