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Some (maybe) unpleasant arithmetic in minimum wage evaluations: The role of power, significance and sample size

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  • Bachmann, Ronald
  • Felder, Rahel
  • Schaffner, Sandra
  • Tamm, Marcus

Abstract

In this paper, we discuss the importance of sample size in the evaluation of minimum wage effects. We first show which sample sizes are necessary to make reliable statements about the effects of minimum wages on binary outcomes, and second how to determine these sample sizes. This is particularly important when interpreting statistically insignificant effects, which could be due to (i) the absence of a true effect or (ii) lack of statistical power, which makes it impossible to detect an effect even though it exists. We illustrate this for the analysis of labour market transitions using two data sets which are particularly important in the minimum wage research for Germany, the Integrated Labour Market Biographies (IEB) and the Socio-Economic Panel (SOEP).

Suggested Citation

  • Bachmann, Ronald & Felder, Rahel & Schaffner, Sandra & Tamm, Marcus, 2018. "Some (maybe) unpleasant arithmetic in minimum wage evaluations: The role of power, significance and sample size," Ruhr Economic Papers 772, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    • Handle: RePEc:zbw:rwirep:772
    DOI: 10.4419/86788900
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    1. Pierre Brochu & David A. Green, 2013. "The Impact of Minimum Wages on Labour Market Transitions," Economic Journal, Royal Economic Society, vol. 123(12), pages 1203-1235, December.
    2. Neumark David, 2019. "The Econometrics and Economics of the Employment Effects of Minimum Wages: Getting from Known Unknowns to Known Knowns," German Economic Review, De Gruyter, vol. 20(3), pages 293-329, August.
    3. Aretz Bodo & Gregory Terry & Arntz Melanie, 2013. "The Minimum Wage Affects Them All: Evidence on Employment Spillovers in the Roofing Sector," German Economic Review, De Gruyter, vol. 14(3), pages 282-315, August.
    4. Kluve, Jochen & Schaffner, Sandra & Schmidt, Christoph M., 2006. "Labor Force Status Dynamics in the German Labor Market: Individual Heterogeneity and Cyclical Sensitivity," Technical Reports 2006,20, Technische Universität Dortmund, Sonderforschungsbereich 475: Komplexitätsreduktion in multivariaten Datenstrukturen.
    5. Eric W. Djimeu & Deo-Gracias Houndolo, 2016. "Power calculation for causal inference in social science: sample size and minimum detectable effect determination," Journal of Development Effectiveness, Taylor & Francis Journals, vol. 8(4), pages 508-527, October.
    6. Hanna Frings, 2013. "The Employment Effect of Industry-Specific, Collectively Bargained Minimum Wages," German Economic Review, Verein für Socialpolitik, vol. 14(3), pages 258-281, August.
    7. Bachmann, Ronald & Penninger, Marion & Schaffner, Sandra, 2015. "The effect of minimum wages on labour market flows: Evidence from Germany," Ruhr Economic Papers 598, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    8. Bonin, Holger & Isphording, Ingo E. & Krause-Pilatus, Annabelle & Lichter, Andreas & Pestel, Nico & Rinne, Ulf & al., et, 2018. "Auswirkungen des gesetzlichen Mindestlohns auf Beschäftigung, Arbeitszeit und Arbeitslosigkeit," IZA Research Reports 83, Institute of Labor Economics (IZA).
    9. Patrick Burauel & Marco Caliendo & Alexandra Fedorets & Markus M. Grabka & Carsten Schröder & Jürgen Schupp & Linda Wittbrodt, 2017. "Mindestlohn noch längst nicht für alle – Zur Entlohnung anspruchsberechtigter Erwerbstätiger vor und nach der Mindestlohnreform aus der Perspektive Beschäftigter," DIW Wochenbericht, DIW Berlin, German Institute for Economic Research, vol. 84(49), pages 1109-1123.
    10. Bachmann, Ronald & Schaffner, Sandra, 2009. "Biases in the measurement of labour market dynamics," Technical Reports 2009,12, Technische Universität Dortmund, Sonderforschungsbereich 475: Komplexitätsreduktion in multivariaten Datenstrukturen.
    11. Michael Zibrowius, 2012. "Convergence or Divergence?: Immigrant Wage Assimilation Patterns in Germany," SOEPpapers on Multidisciplinary Panel Data Research 479, DIW Berlin, The German Socio-Economic Panel (SOEP).
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    More about this item

    Keywords

    power calculation; sample size; significance testing; evaluation; minimum wage;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C80 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - General
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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