Case Study New Jersey's Minimum Pay

Minimum Wages and Employment:

A Case Study of the Fast-Food Industry

in New Jersey and Pennsylvania

On April 1, 1992, New Jersey 's minimum wage rose from $4.25 to $5.05 per hour. To evaluate the impact of the law we surveyed 410 fast-food restaurants in
New Jersey and eastern Pennsylvania before and after the rise. Comparisons of employment growth at stores in New Jersey and Pennsylvania (where the minimum wage was constant) provide simple estimates of the effect of the higher minimum wage. We also compare employment changes at stores in New Jersey that were initially paying high wages (above $5) to the changes at lower-wage stores. We find no indication that the rise in the minimum wage reduced employment. (JEL 530, 523)

How do employers
Change in mean FTE employment 4. Change in mean FTE employment, balanced sample of storesC
5. Change in mean FTE employment, setting
FTE at temporarily closed stores to Od
Notes: Standard errors are shown in parentheses. The sample consists of all stores with available data on employment. FTE
(full-time-equivalent) employment counts each part-time worker as half a full-time worker. Employment at six closed stores is set to zero. Employment at four temporarily closed stores is treated as missing. astares in New Jersey were classified by whether starting wage in wave 1 equals $4.25 per hour ( N = 101), is between
$4.26 and $4.99 per hour ( N = 140), or is $5.00 per hour or higher ( N = 73). b ~ i f f e r e n c ein employment between low-wage ($4.25 per hour) and high-wage ( 2$5.00 per hour) stores; and difference in employment between midrange ($4.26-$4.99 per hour) and high-wage stores. 'Subset of stores with available employment data in wave 1 and wave 2. this row only, wave-2 employment at four temporarily closed stores is set to 0. Employment changes are based on the subset of stores with available employment data in wave 1 and wave 2.

TABLE4-REDUCED-FORM MODELSFOR CHANGEIN EMPLOYMENT
Model
Independent variable
These dummies control for any regions~ecificdemand shocks and identifv the effeet of the minimum wage by employment changes at higher- and lowerwithin the same region of New wage Jersey. The probability value in row 6 shows no evidence of regional components in employment growth. The addition of the region dummies attenuates the GAP coefficient and raises its standard error, however, making it no longer possible to reject the

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null hypothesis of a zero employment effect of the minimum wage. One explanation for this attenuation is the presence of measurement error in the starting wage. Even if employment growth has no regional component, the addition of region dummies will lead to some attenuation of the estimated
GAP coefficient if some of the true variation in GAP is explained by region. Indeed, calculations based on the estimated reliability of the GAP variable (from the set of 11 double interviews) suggest that the fall in the estimated GAP coefficient from column
(iv) to column (v) is just equal to the expected change attributable to measurement error.16 We have also estimated the models in
Table 4 using as a dependent variable the proportional change in employment at each store.17 The