Question

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Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania (CarD and Krueger)

Answer 1

The minimum wage is said to  reduce more future jobs than present.David CarD and Alan Kreuger found that increase in the minimum wagedo not lead to job losses .This study received a lot of credit for challenging the earlier belief that increase in minimum wage would lead to reduction in employment . A intellectual revolution was thus set off by this theory.But findings of one theory does not imply that the traditional theory of minimum wage becomes meaningless.In fact this theory helps us to understand how minimum wage affects employment.In 1992, New Jersey raised minimum wage by 80 cents an hour while Pennyslvania did not raise minimum wage.An experiment was done by CarD and Kreuger which economists call quassi experiment ,and made a comparison of fast food restaurants in  the two cities before and after the minimum wage .The authors conducted interviews in person and also over the phone with hundreds of restuarants in the two states.The authors found that minimum wage increase in New jersey did not reduce employment in relation to Pennysylvania.However this study suffers from a number of flaws and so the traditional theory should not be nullified. The authors only looked at the eleven month period from February to December 1992.In short term , with increase in wage workers were not fired . On the other hand , businesses raised their prices to cover increased cost caused by minimum wage.In medium to long run ,the situation is totally different.With higher minimum wages, only few businesses will operate and others will close down.The rate of job growth is affected by minimum wage and not the number of jobs.Thus in the months after the increase in wage,same level of employment will be there as it would have been without minimum wage hike.Many years after the hike less jobs will be available.