Question

Card and Krueger (1994) consider the impact of New Jersey’s 1992 minimum wage increase from $4.25 to $5.05 per hour to understand whether higher minimum wage decreases employment level. They compare employment in 410 fast-food restaurants in New Jersey and eastern Pennsylvania before and after the rise. Survey data on wages and employment from two waves: Wave 1: March 1992, one month before the minimum wage increase Wave 2: December 1992, eight months after increase are used.

[5pts] What are the control group and the treatment group in this context?

[5pts] Explain common trend assumption in this context. How can you test this assumption with the given data?

[15pts] Write down the regression equation that exploits difference-in-differences design. Carefully define variables and be careful about the subscripts.

[5pts] Given an example that might bias this difference-in-difference estimates and explain why that can bias the estimates.

Answer 1

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