Question

To analyze the effect of a minimum wage increase, a famous study used a quasi-experiment for two adjacent states: New Jersey and (Eastern) Pennsylvania. A β1iffs-in-diffs was calculated by comparing average employment changes per restaurant between to treatment group (New Jersey) and the control group (Pennsylvania). In addition, the authors provide data on the employment changes between "low wage" restaurants and "high wage" restaurants in New Jersey only. A restaurant was classified as "low wage," if the starting wage in the first wave of surveys was at the then prevailing minimum wage of $4.25. A "high wage" restaurant was a place with a starting wage close to or above the $5.25 minimum wage after the increase.

a. Explain why employment changes of the "high wage" and "low wage" restaurants might constitute a quasi-experiment. Which is the treatment group and which the control group?

Answer 1

The "low wage" and "high wage" restaurants in New Jersey serve as a natural quasi-experiment, with the "low wage" group as the treatment group affected by the minimum wage increase and the "high wage" group as the control group for comparison of employment changes.

Step-by-step explanation:

The employment changes between "low wage" and "high wage" restaurants following the increase in the minimum wage in New Jersey can be considered a quasi-experiment because it involves studying two naturally occurring groups subjected to different conditions.

The "low wage" restaurants, which paid the starting wage at the previous minimum wage and had their wages increased to the new minimum, serve as the treatment group because they are directly affected by the policy change.

The "high-wage" restaurants, which were already paying close to or above the new minimum wage, served as the control group because their wage structure was mostly not affected by the increase in the minimum wage.

This setup allows researchers to compare the employment changes in these two groups to determine the effect of the minimum wage increase in the treatment group while controlling for other factors that could affect employment.