Your Textbook Mentions Use of a Quasi-Experiment to Study the Effects

question 47

Essay

Your textbook mentions use of a quasi-experiment to study the effects of minimum wages on employment using data from fast food restaurants. In 1992, there was an increase in the (state)minimum wage in one U.S. state (New Jersey)but not in neighboring location (Eastern Pennsylvania). To calculate the $\hat { \beta } _ { 1 } ^ { \text {diffs-in-diffs } }$ you need the change in the treatment group and the change in the control group. To do this, the study provides you with the following information $$\begin{array} { | l | c | c | } \hline & P A & N J \\\hline \begin{array} { l } \text { FTE Employment } \\\text { before }\end{array} & 23.33 & 20.44 \\\hline \text { FTE Employment after } & 21.17 & 21.03 \\\hline\end{array}$$ Where FTE is "full time equivalent" and the numbers are average employment per restaurant.
(a)Calculate the change in the treatment group, the change in the control group, and finally $\hat { \beta } _ { 1 } ^ { \text {diffs-in-diffs } }$ Since minimum wages represent a price floor, did you expect $\hat { \beta } _ { 1 } ^ { \text {diffs-in-diffs } }$ to be positive or negative?
(b)If you look at $\hat { \beta } _ { 1 } ^ { \text {diffs-in-diffs } }$ , is this number primarily due to a change in the treatment group or the control group? Is this what you expected?
(c)The standard error for $\hat { \beta } _ { 1 } ^ { \text {diffs-in-diffs } }$ is 1.36. Test whether or not the coefficient is statistically significant, given that there are 410 observations. If you believed that the benefit from small minimum wage increases outweighed the cost in terms of employment loss, would finding that this coefficient was not statistically significant discourage you?

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Definitions:

Identical Twins

Twins originating from one fertilized egg that divides, resulting in two embryos with identical DNA.

Genes

Segments of DNA located on chromosomes, acting as the basic units of heredity and determining the characteristics of an organism.

Thematic Apperception Test

is a psychological assessment tool in which individuals are asked to create stories based on ambiguous images, used to uncover underlying thoughts, feelings, and themes about themselves and the world.

Projective

Relating to a type of psychological test in which individuals reveal their unconscious feelings and thoughts through the interpretation of ambiguous stimuli.