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Minimum Wages and Employment: a Case Study of the Fast-Food Industry in New Jersey and Pennsylvania

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Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania

The article aims to evaluate the impact of increased minimum wage from $4.25 to $5.05 per hour in 1992 on the employees working in fast-food restaurants in New Jersey and Pennsylvania. The author has shown two comparisons in this study. One is the comparison of employment growth rates at Stores in New Jersey and Pennsylvania before and after the rise of minimum wage. And second is change in the employment rate from stores which paid higher wages initially to the changes in lower wage stores. His study concluded that there is no indication that the increase in minimum wage reduces employment.
Analogous to this case study, based on the basic economic concepts, rise in the wage rate per hour have two effects – substitution effect and the income effect. If substitution effect dominates the income effect, then rise in minimum wage increases the labor supply and thus the employment rate. But if income effect dominates, then rise in minimum wage reduces unemployment. We shall understand the reason behind why rising minimum wage did not show any impact.
The study analysed the 410 fast –food restaurants in New Jersey and Pennsylvania post the increase of minimum wage and compared the changes in wages, employment and prices at stores before and after such increase. Some of the other significant features of this empirical study include: first, the idea to increase the minimum wage happened when economy was already in recession. Second, New Jersey is a very small economy linked to nearby states and Pennsylvania is one of them. Wage variation across stores in New Jersey, however, allows us to compare the experiences of high-wage and low-wage stores within New Jersey and to test the validity of the Pennsylvania control group. Similarly, the idea of choosing the fast-food

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