Given the regression results Unemployment Rate_it = α + 0.8 (0.3) × Alabama_it - 0.4 (0.2) × South Carolina_it + 0.2 (0.3) × North Carolina_it + 0.4 (0.12)MinimumWage_it - 0.1 (0.1)Year_t, where the coefficients are reported with their standard errors in parenthesis, what might be a fact that would make you concerned about the interpretation of the coefficient on minimum wage as being causal? A) North Carolina has consistently had a higher share of college educated in the population relative to other states in the analysis. B) National policies have led to stricter conditions to apply for unemployment insurance. C) The minimum wage rate is different across many states in the southern region of the U.S. D) In most instances, when a state raises the minimum wage it is also accompanied by state legislation that changes fiscal policy towards economic activity.

Question

Quizplus · Accepted Answer

The fact that state legislation that changes fiscal policy towards economic activity often accompanies a minimum wage increase suggests that there may be confounding factors that are affecting the relationship between minimum wage and unemployment rate. This makes it difficult to interpret the coefficient on minimum wage as a causal effect.

Given the Regression Results Unemployment Rateit = α + 0

Given the Regression Results Unemployment Rate_it = α + 0