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 β₁ᵈᶦᶠᶠˢ⁻ᶦⁿ⁻ᵈᶦᶠᶠˢ 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.
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 comparison between "low wage" restaurants affected by the new minimum wage and "high wage" restaurants that were not directly affected represents a quasi-experiment, using the former as the treatment group and the latter as the control group, to infer the policy's impact on employment.

Step-by-step explanation:

The employment changes between "low wage" and "high wage" restaurants in New Jersey after a minimum wage increase can be seen as a quasi-experiment because it compares the effects of the policy change within the same economic environment.

The "low wage" restaurants, which had wages equal to the previous minimum wage, can be seen as the treatment group because they are directly affected by the new minimum wage policy.

Conversely, the "high wage" restaurants serve as the control group because their starting wages were already above the new minimum and therefore they are less likely to be affected by the policy change.

This differentiation allows researchers to infer the causal effects of the minimum wage increase on employment by observing the employment changes in both groups after the policy implementation.