Given that many reading lists feature dry and conventional texts, standing out in your personal statement (PS) can be very challenging. I recommend that students, in addition to reading standard materials, start exploring research papers.
I would like to introduce a paper that challenges the theories you may have learned in A-level about the impact of minimum wages on employment. This paper presents an empirical analysis of the impact of minimum wage on employment, particularly focusing on the fast-food industry in New Jersey and Pennsylvania. The findings of this study refute the traditional theories regarding minimum wage and employment that are typically taught at the high school level.
About the Authors
David Card: An economics professor at the University of California, Berkeley, who graduated in 1950. Card's research interests include wage determination, education, inequality, immigration, and gender-related issues. He served as the president of the American Economic Association in 2021 and was awarded the Nobel Prize in Economics in the same year.
Alan Bennett Krueger: An American economist who served as the James Madison Professor of Political Economy at Princeton University and was a research associate at the National Bureau of Economic Research. In 2011, he was nominated by President Obama to be the chairman of the White House Council of Economic Advisers, a position he held from November 2011 to August 2013.
Introduction
On April 1, 1992, New Jersey increased its minimum wage from $4.25 to $5.05 per hour. To study the effects of this increase, a survey was conducted involving 410 fast-food restaurants in New Jersey and eastern Pennsylvania before and after the wage increase. Pennsylvania, where the minimum wage remained constant, served as a control group.
Key Research Questions
1. How do employers in low-wage industries respond to an increase in the minimum wage?
2. What are the effects on employment, wages, and prices in affected industries?
Methodology
Survey Design: Surveys were conducted in two waves- before the wage increase (February-March 1992) and after (November-December 1992).
Sample: The study focused on fast-food restaurants including Burger King, KFC, Roy Rogers, and Wendy's.
Comparisons: Employment trends were compared between New Jersey and Pennsylvania, as well as within New Jersey between high-wage and low-wage stores.
Findings
1. Employment Effects:
There was no significant reduction in employment in New Jersey relative to Pennsylvania.
Employment actually increased in New Jersey, particularly at low-wage stores, contrary to the predictions of conventional economic theory that suggests a rise in minimum wage should reduce employment.
2. Wages:
Starting wages increased in New Jersey following the minimum wage hike, with most restaurants adjusting their pay to the new minimum.
High-wage stores in New Jersey (paying more than $5.05 initially) showed no significant change in wages.
3. Prices:
The prices of meals increased in New Jersey relative to Pennsylvania, indicating a pass-through of higher labour costs to consumers.
The increase in prices was consistent with the cost increase predicted by a rise in wages
4. Store Closures and Openings:
There was no significant effect on the rate of store closures.
The study also found no substantial evidence that the increase in minimum wage deterred the opening of new stores.
5. Other Employment-related Measures:
The fraction of full-time employees and the number of hours stores were open showed no significant change, indicating no reduction in operational hours or shifts towards part-time employment to cut costs.
Broader Implications
Contradicting Conventional Theory: The findings challenge the conventional economic theory that minimum wage increases lead to job losses in low-wage industries.
Consistency with Previous Studies: These results align with other studies that found no significant negative employment effects of minimum wage increases, including research on federal minimum wage hikes and studies in the UK and California.
Conclusion
The study concludes that the rise in New Jersey's minimum wage did not have the negative employment effects predicted by standard economic models. Instead, it resulted in higher wages and slightly higher prices without reducing employment, suggesting that the adverse employment effects of minimum wage increases may be overstated in competitive markets. This research provides valuable insights into the ongoing debate about the impact of minimum wage policies.
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