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

Author

Listed:
  • 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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    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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