The relationship between minimum wages and employment figures documented by Cardand Krueger’s works in both 1994 and 2000, as well as responses to Card and Krueger’s1994 work considered for reply in 2000, focused solely in the fast-food sector, and in justtwo states, Pennsylvania and New Jersey.Beyond Pennsylvania and New Jersey, the minimum wage at the statewide level is anissue that draws attention across the US. Until the second half of 2007, the US federalminimum wage remained unchanged at $5.15 an hour for over 10 years. Meanwhile, theminimum wage in several states across the US increased, while in other states, theminimum wage underwent no change whatsoever. This phenomenon leads one toreasonably question the effects of these statewide minimum wage increases.The QuestionsQuestions arise with respect to the relationship between employment levels and minimumwages proposed by Card and Krueger.
First,does a relationship between minimum wagesand employment exist beyond Pennsylvania and New Jersey or in industries and sectorsbeyond the fast food industry?
One possibility may be that perhaps the effect describedby Card and Krueger may be specific to New Jersey and Pennsylvania, or to the fast-foodindustry, while the relationship may be of wildly varying magnitude and direction on theaggregate level.
Second, what is the explanation for the relationship which was found?
To address thisquestion one must consider the effect of the minimum wage on both the labor demandfunction, on effective demand. Statewide variations in tradability and in capital/laborsubstitution elasticity expressed along sectoral lines must also be taken into account.The major purpose of this study is to empirically address these two questions. Inparticular, this study seeks to shed light onto factors determining the shape and nature of the relationship between minimum wages and employment. In the next section, part 2,previous research on the minimum wage topic is explored. Part 3 explores the theoretical