Question

What do Card and Krueger find regarding the effects of increasing the minimum wage on employment? Tell me an economic story that would explain their results

Answer 1

Card and Krueger through their study, found that increase in minimum wage, does not decrease the employment, rather, it increases the employment. The study was conducted in New Jersey in 1992 and the findings cam to challenge the general convention that increase in minimum wage, will lead to decrease in employment and employers would like to compensate for it by decreasing workers employed. But, Card and Krueger found that the stores giving wage that were higher than the minimum wage remained unaffected, but stores that had to raise the wage according to minimum wage guidelines, increased employment.

Behind this phenomenon, there is an economic story that increase in wage, increases the disposable income and it increases the demand. The increase in demand is catered by increased level of supply. It requires more manpower and firms or stores increase the number of jobs and hire more people even if they pay higher minimum wages.