The New Jersey-Pennsylvania Study on the Effect of Minimum Wages

question 35

Essay

The New Jersey-Pennsylvania study on the effect of minimum wages on employment mentioned in your textbook used a comparison in means "before" and "after" analysis.The difference-in-difference estimate turned out to be 2.76 with a standard error of 1.36.
The authors also used a difference-in-differences estimator with additional regressors of the type
ΔYi = β0 + β1Xi + β2W1,t + ...+ β1+ rWr,i + ui
where i = 1,…,410.X is a binary variable taking on the value one for the 331 observations in New Jersey.Since the authors looked at Burger King,KFC,Wendy's,and Roy Rogers fast food restaurants and the restaurant could be company owned,four W-variables were added.
(a)Given that there are four chains and the possibility of a company ownership,why did the authors not include five W-variables?
(b)OLS estimation resulted in 1 of 2.30 with a standard error of 1.20.Test for statistical significance and specify the alternative hypothesis.
(c)Why is this estimate different from the number calculated from Δ - Δ = 2.76? What is the advantage of employing this estimator of the simple difference-in-difference estimator?

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Definitions:

Degrees of Freedom

In statistical analysis, it refers to the number of independent values or quantities which can be assigned to a statistical distribution.

Coefficient of Determination

A statistic that indicates the proportion of the variance in the dependent variable that is predictable from the independent variables.

Total Variation

The overall measure of variability within a dataset, representing the sum of squared differences from the mean.

Coefficient

A numerical or constant quantity placed before and multiplying the variable in an algebraic expression.