How much does an increase in the mimimum wage reduce demand for low-skilled workers? Economics theory suggests that demand falls when the price rises, but precisely how much is an empirical question. The labor economists David Card and Alan Krueger (1994) decided to explore this question exploiting a quasi-experimental setting. In 1992, the minimum wage in New Jersey rose from $4.25 to $5.05 per hour, but the minimum wage in neighbouring Pennsylvania stayed constant. Card and Krueger collected data on employment at fast-food restaurants before and after the wage increase in the two states. Card and Krueger used a Difference-in-Differences approach to estimate the causal effect of the introduction of minimum wage on low-skills employment. Interestingly, Card and Krueger did not find any effect on employment in New Jersey relative to Pennsylvania A. Write the estimating equation and explain what each coefficient captures. [20 marks] B. Explain why the Difference-in-Difference estimator can be used in this setting [30 marks] C. Explain which is the main identification assumption for the Difference-in Differences methodology. [30 marks]