NJ and PA Once Again: What Happened to Employment When the PA–NJ Minimum Wage Differential Disappeared?

Abstract

Card and Krueger's analysis of the impact of the 1992 increase in the New Jersey (NJ) state minimum wage on employment in fast-food restaurants in NJ and Pennsylvania (PA) is very well known. In 1996 and 1997, the federal minimum wage was increased from $4.25 to $5.15, thereby increasing the minimum wage by $0.90 in PA but by just $0.10 in NJ. We use CPS data to examine the impacts of this increase on employment of likely minimum wage workers in the two states, using DID and DIDID estimators that exploit within-state and between-state comparisons. We find consistent evidence that employment of “at-risk” groups was negatively affected in PA relative to other groups in PA and to comparable groups in NJ.

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Notes

  1. 1.

    The effect reflects a decline in employment in PA and essentially no change in NJ. This implies that employment would have fallen in NJ had it not been for the minimum wage increase.

  2. 2.

    Card and Krueger (2000, pp. 1406–7) very briefly examine the impact of only the 1996 increase on employment in fast-food restaurants in PA counties adjacent to NJ using BLS aggregate data on employment in firms covered by UI programs. Their analysis indicated that employment in PA rose relative to NJ between October 1996 and September 1997 for the seven-county PA sample that was part of their original analysis and increased very slightly in a broader 14-county PA sample.

  3. 3.

    Many of the earliest contributions to this new literature appear in a special issue of The Industrial and Labor Relations Review, October 1992, including Card [1992] and Katz and Krueger [1992]. See Neumark and Wascher [2007] for a very thorough review.

  4. 4.

    That most of the quantitative change in employment comes from the negative experience of the control state is not problematic as long as PA is considered an appropriate control.

  5. 5.

    For an explanation in terms of rescheduling effects, see Michl [2000], who argues that the minimum wage increase could cause firms to increase employment, while reducing the workweek.

  6. 6.

    The payroll data were collected with the assistance of the Employment Policy Institute, an industry-based group. This has created some concerns about possible biases in the data.

  7. 7.

    Deere, Murphy, and Welch do not use the language of natural experiments nor make any explicit difference-in-difference calculations.

  8. 8.

    The only group not following this pattern is states classified into high-wage, middle-wage, and low-wage. This parallels the finding of Card [1992]. Deere, Murphy, and Welch argue that this reflects employment growth by state in low-wage states that overwhelms the impact of the minimum wage increase.

  9. 9.

    Data files were obtained from the CEPR data archive at http://www.ceprdata.org/cps/org_index.php.

  10. 10.

    We use the recoded variable LFP, which includes codes for Not in Labor Force, employed full-time or part-time for economic or non-economic reasons, and unemployed.

  11. 11.

    The 40 percent decrease in the NJ sample size between 1995 and 1998 reflects a reduction in the overall CPS sample in 1996 that affected primarily states that had higher than average sampling rates. See BLS [2002] Table H-1 for further information. Prior to the sample decrease, sample weights for PA were 40 percent higher than NJ, which means that NJ was sampled at a substantially higher rate than PA. Sample weights in 1998 for NJ and PA are within 4 percent of each other.

  12. 12.

    These differences in race and Hispanic composition are confirmed in official state population estimates for NJ and PA (see PA Division of Health Statistics 1998 and New Jersey Department of Labor and Workforce Development, undated).

  13. 13.

    Sample sizes in Table 2 range from 2,918 (females, PA, 1995, age 30–49) to 224 (non-teen males, education<high school, NJ, 1998). A table with sample sizes and standard errors for each group for this table and all others is available from the authors.

  14. 14.

    Nationally, the employment rate for women aged 16 and older increased from 55.6 percent in 1995 to 57.1 percent in 1998.

  15. 15.

    The elasticity estimates assume that employment in the control group was completely unaffected by the change in the minimum wage. As such, the computed elasticities are upper-bound estimates.

  16. 16.

    We gratefully acknowledge the suggestion of an anonymous referee to apply the methods of this paper to the earlier NJ–PA episode.

  17. 17.

    This is the broad industry code analyzed by Card and Krueger in their analysis of BLS firm data [Card and Krueger 2000], although they focus on employment only in fast-food restaurants within this industry.

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Acknowledgements

The authors thank the referees and editor of this journal for their helpful suggestions.

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Hoffman, S., Trace, D. NJ and PA Once Again: What Happened to Employment When the PA–NJ Minimum Wage Differential Disappeared?. Eastern Econ J 35, 115–128 (2009). https://doi.org/10.1057/eej.2008.1

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Keywords

  • minimum wage
  • Card–Krueger

JEL Classifications

  • J010
  • J080
  • J780