Critique of Card and Krueger's Minimum Wage Case Study

This article critiques Card and Krueger's 1994 case study on the impact of minimum wage on employment in the fast food industry in New Jersey and Pennsylvania. The study used a quantitative research design and found that a raise in minimum wage had minimal impact on employment. The article recommends keeping minimum wages low to maintain a large labor force.

Minimum Wage Case Study
Critique of Card, D., Krueger, A.B. (1994). Minimum wages and employment: a case study of
the fast food industry in New Jersey and Pennsylvania. American Economic Review, 84(4), 772-
93.

Minimum Wage Case Study
Introduction
For a good part of the 20th century, the minimum wage of employees has been a subject
of controversy among policymakers and economists in the US. Legislation resulted to setting up
minimum wages at 25 cents per hour (Frédéric Gavrel, 2012). Economists believe that the new
minimum wage illustrated a way of testing alternative choice models of the labor market. Card,
D., Krueger, A.B. (1994) outlines laborers’ right to a living wage.
Card, D., Krueger, A.B. (1994) article uses a difference-in-difference identification
strategy to evaluate the influential effect of the lowest salary raise on employment. The authors
of the article argue that a living wage is dependent upon the principle of just prices. They also
argue that raising the lowest wage has significant impact on wage distribution, helping to curb
the continuity of wage non-uniformity.
The review of this paper indicates that there is are several estimates and, thus, a lack of
agreement on the general impact on employment of a raise in the lowest employment-wage. The
paper points out to a negative impact of increase in lowest wages on employment.
Research methods
Research design
The research employed a quantitative design. This is because variables used for analysis
are numerical in nature. The researchers tried to investigate the effect of a raise in the lowest
wages on employment in the US. The dependent and independent variables were quantitative.

Minimum Wage Case Study
Data collection
Telephone surveys were used for administering interviews to the sampled respondents in
the study. Restaurants in the states of New Jersey and Pennsylvania were sampled to participate
in the survey. Telephone surveys were preferred since they are less costly and less cumbersome
compared to other methods of data collection.
Data analysis
Both descriptive and inferential statistical tools were used for analyzing the data for the
study. Mean was used to find out averages of variables that were involved in the study.
Frequencies and percentages were used for assessing distribution of variables. Bar charts were
also used to represent percentages and frequencies, and for comparing data series of different
groups (New Jersey and Pennsylvania) of the data set.
Correlation analysis was performed to assess the association between variables.
Correlation determined the association that between variables that related with increase in
minimum wages had with employment. Correlation between responses gave the reliability ratio,
that is, the ratio of the variance of the signal to the combined variance of the signal and noise
(Bernard Udis, 2009). The question that correlation analysis tried to answer is;
Is there any association between increase in minimum wages with unemployment in the US?
Regression analysis was carried out to assess the impact that the independent variables
(factors associated with increase in minimum wage) had on the dependent variable
(unemployment).

Minimum Wage Case Study
Independent t-test analysis was performed in order to assess the difference between
means of variables between the two groups (New Jersey and Pennsylvania).
The research hypothesis that the independent t-test answers is;
H1: There is a difference in the means of variables between the state of New Jersey and
Pennsylvania.
Other methods that would have been used
Alternative tools for analysis that would have been used include cross tabulations, chi square and
Analysis of Variance (ANOVA)
Reason for the alternative methods
The above methods would have been alternatively used since these methods provide comparison
between means of groups, similar to the independent t test (Gooitzen Zwanenburg, 2011).
Findings
The major inference out of the research was that a raise in the lowest employment-wage
had a minimal or even no impact on employment. It was shown that raising the bare minimum
employment-wages had no significant impact on employment. It has also been found that a raise
in the lowest possible employment-wages for a section of unskilled laborers can result to a
decline in their employment, as they are replaced with other unskilled laborers. The net
unemployment impact may be minimal, but the long run effect on specific sub-sections of
laborers could be adverse.

Minimum Wage Case Study
Conclusion
Since it has been shown that a raise in minimum wage for employees is related with
unemployment, it is recommended that businesses, in order to maintain a huge labor force,
should strive to keep the employees’ minimum wages low. Increasing the minimum wages shall
imply that more income shall be allocated for remuneration of the employees. To counter
increasing income due to increase in minimum wages, businesses shall tend to lay off excess
workforce, resulting to unemployment.

Minimum Wage Case Study
References
Bernard Udis, J. M. (2009). A study of the correlates of wage level and dispersion in U. S. manufacturing:
Twelve cities, 1991–2005. 7.
Frédéric Gavrel, I. L. (2012). Minimum wage, on-the-job search and employment: On the sectoral and
aggregate equilibrium effect of the mandatory minimum wage. 9.
Gooitzen Zwanenburg, H. C. (2011). ANOVA–principal component analysis and ANOVA–simultaneous
component analysis: a comparison. 7.