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A new machine learning-based treatment bite for long run minimum wage evaluations

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Listed:
  • Börschlein, Benjamin
  • Bossler, Mario

Abstract

Empirical evaluations of national minimum wages, such as in Germany or the UK, rely on bite measures that capture treatment variation; measured from the incidence (or intensity) of employees paid below the threshold before the minimum wage was introduced or raised. Bite-dependent estimations face the problem of dynamic selection, implying that even in the absence of the minimum wage the bite may have changed over time. We apply a machine learning method from the field of regularized regression to predict the contemporary bite of the German minimum wage, allowing us to address unobserved dynamic selection in an empirical evaluation of long run effects of the minimum wage. Our LASSO predicted bites show clear improvements over simple forward updating of the initial bite, allowing us to estimate contemporary effects of the German minimum wage from 2015 to 2017.

Suggested Citation

  • Börschlein, Benjamin & Bossler, Mario, 2021. "A new machine learning-based treatment bite for long run minimum wage evaluations," VfS Annual Conference 2021 (Virtual Conference): Climate Economics 242441, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc21:242441
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    minimum wage; bite; evaluation; dynamic selection; machine learning; LASSO;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • C49 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Other
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models

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