On April 1, 1992, New Jersey’s minimum wage was increased from$4.25 to $5.05 per hour, while the minimum wage in Pennsylvaniastayed at $4.25 per hour. Energetic students collected data on 410fast food restaurants in New Jersey (the treatment group) andeastern Pennsylvania (the control group). The “before” period isFebruary 1992, and the “after” period is November 1992. Using thesedata, we will estimate the effect of the “treatment,” raising theNew Jersey minimum wage on employment at fast food restaurants inNew Jersey (i.e., H_0:δ=0 versus H_A:δ<0). It is easier and moregeneral to use the regression format to compute thedifferences-in-differences estimate using sample means. Let y=FTEemployment , the treatment variable is the indicator variable NJ=1if observation is from New Jersey, and zero if from Pennsylvania.The time indicator is D=1 if the observation is from November andzero if it is from February.

(a.)Write out the regression equation.

(b)Report the least squares estimates .

(c)At the α=.05 level of significance the regression region forthe left tail test in above hypotheses is t≤-1.645, what is yourconclusion?

(d)As with randomized control (quasi) experiments it isinteresting to see the robustness of the result from (c). Please,add indicator variables for fast food chain and whether therestaurant was company-owned rather than franchise-owned. Thesechanges alter the DID estimator?

(e)Please, add indicator variables for geographical regionswithin the survey area. These changes alter the DID estimator?