1. ECON 3039 Labor Economics 2015-16 By Elliott Fan Economics, NTU Elliott Fan: Labor 2015 Fall Lecture 51

2. Difference-in-difference (DD) 2 Consider the paper by Card and Krueger (1992), who analyze the raise in minimum wage in New Jersey from $4.25 to $5.05 on April 1 st, 1992. Data on employment at fast food restaurants in NJ in Feb 1992 and in Nov 1992  so as to compare the pre and post. Data from the same types of fast food restaurants in Penn, where minimum wage stayed at $4.25 throughout the period.  this serves as the control group. Elliott Fan: Labor 2015 Fall Lecture 5

3. Difference-in-difference (DD) 3 They estimate the following function: Elliott Fan: Labor 2015 Fall Lecture 5

4. Difference-in-difference (DD) 4Elliott Fan: Labor 2015 Fall Lecture 5

5. 5 Difference-in-difference (DD) Elliott Fan: Labor 2015 Fall Lecture 5 In graph:

6. Results 6Elliott Fan: Labor 2015 Fall Lecture 5

7. Difference-in-difference (DD) 7 Underlying requirements for a good control group: The treatment and control groups are exposed to the treatment at least to different degrees. Other trending factors affect the two group in the same way (how many factors need to check?) (1) It does not matter to use a control group that is different from the treatment group, once the difference is not affected by the treatment. (2) we need to examine the “common trend assumption” Elliott Fan: Labor 2015 Fall Lecture 5

8. Difference-in-difference (DD) 8Elliott Fan: Labor 2015 Fall Lecture 5

9. Difference-in-difference (DD) 9Elliott Fan: Labor 2015 Fall Lecture 5 A better example: Pischke (2007) analyzes the effect of school length on student performance. In German, Children in all states but Bavaria started school in spring. Beginning in 1966-67 school year, the spring starters moved to start school in the fall. The transition required two short school years for affected student.

10. Difference-in-difference (DD) 10Elliott Fan: Labor 2015 Fall Lecture 5

11. The role of state-specific trend 11Elliott Fan: Labor 2015 Fall Lecture 5 Besley and Burgress (2004) study the effect of labor regulation on firms’ productivity in Indian states. They use state-specific trends as a robustness check: Their results suggest that controlling for the state-specific trends kills the treatment effect, implying that labor regulation increased in states where the output was declining anyway.

12. Difference-in-difference-in-difference (DDD) 12Elliott Fan: Labor 2015 Fall Lecture 5 One way to enhance our confidence in the common trend assumption is to add more dimension for comparison. One example is Jensen (2003), who analyzes the crowding out effect of the Old Age Pension that provides cash payments to women aged 60+ and men aged 65+. His specification is: