card_krueger-_minimum_wage - Minimum Wages and Employment:...

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Minimum Wages and Employment: A 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 F. 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. A study 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. Richard A. Lester, 1960, 1964). Several re- This paper presents new evidence on the effect of minimum wages on establishment- level employment outcomes. We analyze the experiences of 410 fast-food restaurants in *Department of Economics, Princeton University, New Jersey and Pennsylvania following the Princeton, NJ 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 N~~ jersey between 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 of the impact of the 1991) concludes that the employment effects of the new lawe
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card_krueger-_minimum_wage - Minimum Wages and Employment:...

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