Minimum wage and unemployment (6 points) Economists have long reasoned that requ
ID: 3054033 • Letter: M
Question
Minimum wage and unemployment (6 points) Economists have long reasoned that requiring employers to pay a higher wage to employees than they would otherwise, would lead to more unemployment. For example, the higher cost of labor may induce firms to look for more technological substitutes (think auto checkout machines instead of human cashiers). Suppose we are curious whether there is empirical evidence to support this assertion and we gather data on the minimum wage (expressed in dollars) and the unemployment rate (expressed in percentage points) for each state s including DC. We estimate the regression Unemployment Rate,-? + ? Minimum Wage, + es and get the resulting Stata output: Linear regression Number of obs F (1, 49) Prob > F R-squared Root MSE 51 2.99 0.0900 0.0677 98475 Robust Std. Err Unemployme e Coef [95% Conf. Interval] MinimumWage cons 2011311 2.462659 1163016 9599873 1.73 0.090 2.570.013 0325858 5334924 434848 4.391826 5. Which of the following statements directly follows from the regression analysis? a) b) c) d) A $1 increase in the minimum wage is associated with a 0.2 percentage point increase in the unemployment rate. If the minimum wage is $2 higher in State A compared to State B, the regression predicts that State A's unemployment rate is 0.4 percentage points higher than State B's. On average, a higher minimum wage leads to increased unemployment and this effect is statistically significant at the 10% level On average, states with higher minimum wages have higher unemployment rates and this association is statistically significant at the 5% levelExplanation / Answer
All answers with reasons:
5
a. True, read the coefficient of MinimumWage, it' .2011
b. True, read the coefficient of MinimumWage, its' .2011 therefore, .2011*2 = ~.4
c. True, p-value is .09 which is less than .10
d. False, p-value would be more than .05 and hence it wouldn't be statistically significant