This article briefly explains the case study for which Mr. David Card won the Noble Prize for Economics
To help our young readers understand the thesis:
David Card: On his theory and thesis of affect of minimum wages on employment. His Case Study based on fast Food Industry in New Jersey and Pennsylvania was jointly done by Mr. Card and late Mr. Alan B. Krueger.
A common text book belief is that an Employer decides the wage of an employee based on the quality of work, output of the employee which results in a balance between cost of wages and Company's profitability.
Enter "minimum wages", a minimum hourly/ monthly wage decided by the Government for defined category of work and skill set of a worker on the basis of minimum renumeration required by a worker depending on the cost of living, inflation rate and quality of life in a certain region.
Minimum wages were defined by Governments as it is believed that Employers might want to short change the workers to earn extra profit while being inconsiderate towards their workers basic needs. Hence minimum wages were introduced and are updated regularly by the Authorities.
The common belief has been that with the increase of minimum wages would lead to
| The Employer would only resort to reducing manpower | |
| This would lead to hiring of lesser manpower required for the same job | |
| Companies would resort to automation to replace workers with higher minimum wages | |
| Young and inexperienced workforce would not be hired and this would lead to scarcity of jobs for youngsters | |
| Companies will increase the price of the end Product or Service which would eventually affect the Consumers adversely |
Which lead to a common theory and belief among Economists that the Market should decide the wages instead of the Government.
But the Card and Kruger study reveals through sample cases in 2 States of US that increase of minimum wages did not have any co relation with increase in unemployment rate. A piece of the Study:
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
