4. In February 1992, New Jersey (NI) increased the state minimum wage from $4.25

Question

4. In February 1992, New Jersey (NI) increased the state minimum wage from $4.25 to $5.05, but in Pennsylvania (PA) minimum wage stayed at $4.25. Do minimum wages decrease employment in low wage labor markets (eg fast-food restaurant industry)? This is a classical yet controversial question. Suppose you estimate FTE = + ANJ-,Post-,NJ * Post + u, where FTE is the number of employees in a restaurant. NJ is a dummy that is 1 if a restaurant is in NJ, and 0 if it is in PA. Post is a dummy that is 1 if it is from the year after the minimum wage increase and is 0 if it's from the year before. (1) How would you interpret and ? (2) How would you interpret p,? (3) Which coefficient captures the impact of the minimum wage increase on the average number of restaurant employees?

Explanation / Answer

(1)

FTE: beta1 no. of employees will be add if resourant in NJ and its have no impcat resourant in PA.

beta2 no. of post will be subtracted or decreased if from the year after minimum wade ow its have no impact on FTE.

(2)beta 3 no. of employees will be add if resourant in NJ and from the year after minimmum wade only. otherwise its have no impact on FTE>

(3) beta2 as well as beta3 coefficient captures the impact of minimum wage.

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