Empirical Projects

A controversial issue in economics today is whether legal minimum wages reduce employment. Until recently, the consensus among professional economists, based on theoretical reasoning and empirical research, was that minimum wages cost jobs. Beginning in 1992, however, this consensus came under attack in a series of empirical studies that failed to find negative effects of minimum wages on employment. In some cases, these new estimates even suggested that increases in the minimum wage caused an increase in employment (something noted by president Clinton in his 1996 State of the Union Address). The project asks you to reestimate the results from one of the most influential recent minimum wage studies.

A. Background readings

Chapters 1-4 and 6 in: David E. Card and Alan B. Krueger, Myth and Measurement: The New Economics of the Minimum Wage (Princeton University Press, 1995). Chapter 2 was originally published as Lawrence F. Katz and Alan B. Krueger, "The Effect of the Minimum Wage on the Fast Food Industry," NBER working paper No. w3997 (February 1992); and Card and Krueger, "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania," American Economic Review 84 (September 1994): 772-93.

Ronald G. Ehrenberg, ed. "Review Symposium on Myth and Measurement: The New Economics of the Minimum Wage." The Industrial and Labor Relations Review 48, 4 (July 1995): 828-849.

Taeil Kim and Lowell J. Taylor. "The Employment Effect in Retail Trade of California's 1988 Minimum Wage Increase." Journal of Business and Economic Statistics 13, 2 (April 1995): 175-182.

D. Deere, K. M. Murphy, and F. Welch. "Employment and the 1990-91 Minimum-Wage Hike." American Economic Review 85, 2 (May 1995): 232-237.

B. Assess the controversy

Write a 3-4 paragraph summary of the minimum wage controversy.

What are the questions being tackled in this literature? Why are they so difficult? Why are they important? Why have they drawn special attention in the last 10 years? What empirical strategies have been used to answer the questions of interest?

C. Conduct a replication study

Pick a study from one of the 7 below, then pick two tables in your study containing the most important findings regarding the effects of minimum wages on employment. Replicate these tables using the authors' data. Briefly describe your replication effort. Was it successful? If not, what do you think the problem is? If successful, did you have any special difficulties? Attach SAS logs showing your work. Report replication results in tables comparing your results with the original.

Replication selections

From Myth and Measurement:

1. Chapter 2, "Evidence from the Fast Food Industry." The New Jersey study (employment effects only).

2. Chapter 2, "Evidence from the Fast Food Industry." The Texas study.

3. Chapter 4, "The Effect of the Federal Minimum on Low-wage Workers: Evidence from Cross-State Comparisons." The study of effects of the minimum wage on teenagers.

4. Chapter 4, "The Effect of the Federal Minimum on Low-wage Workers: Evidence from Cross-State Comparisons." The study of effects on the retail-trade and restaurant industries.

5. Chapter 6, "Evaluation of Time-Series Evidence."

Data from these studies may be obtained from:

ftp://irs.princeton.edu/pub/MINIMUM

From the Journal of Business and Economic Statistics (slightly more technical studies):

6. David Neumark and William Wascher. "Minimum Wage Effects on Employment and School Enrollment." JBES 13, 2 (April 1995): 199-206.

Data from:

ftp://www.amstat.org/JBES_View/95-2-APR/neumark_wascher/

7. Taeil Kim and Lowell Taylor. "The Employment Effect in retail Trade of California's 1988 Minimum Wage Increase." JBES 13, 2 (April 1995): 175-182.

Data must be collected from original sources.

D. Extend the empirical work you have replicated (up to 5 points extra credit)

This can be done by estimating specifications that the authors did not report; adding additional variables to the models using information that you have collected; updating the authors' sample; or by using a different sample to estimate similar models. Explain the motivation for your extension and write up your findings.

Topic 1. For the N.J. study, the data are in the file public.dat with variables explained in the file codebook. The read.me file gives the details.

Topic 2. (10% bonus) For the Texas study, here are the files in text format. The variable names are explained on the website in the *.txt files (within the texas directory).

tex1.asc (ASC)

tex2.asc (ASC)

table5.asc (ASC)

table6.asc (ASC)

Topic 3. (10% bonus) For the teenagers study, the files are in the directory chapter4. See the read.me file for details.

Topic 4. The data are unfortunately not available. People who chose this topic should do topic 3. Alternatively, you could try to obtain the data yourself, in which case you will get 20% bonus credit as for Topic 7.

Topic 5. (15% bonus) The files are in the directory tseries. See the read.me file for details. The data can be found in text format in the files ts1.out and ts2.out. You need to figure out what the variable names mean from the lines of code above and reading the chapter.

Topic 6. For the Neumark-Wascher study, the files are on the website: ftp://www.amstat.org/JBES_View/95-2-APR/neumark_wascher/

Topic 7. Data to be collected by student. Hint: Try Dewey Library!



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