CBO's Minimum Wage Study: Dealing with Publication Bias
I’ve finally got around to reading more details about the Congressional Budget Office’s report on the number of jobs lost from raising the minimum wage. The CBO estimated a range of outcomes from raising the minimum wage from its current $7.25 an hour (1) to $9.00 an hour and (2) $10.10 an hour.
For $9.00 an hour, the CBO’s estimated range was “a very slight increase” to a loss of 200,000 jobs, with the central tendency being a loss of 100,000 jobs.
For $10.10 an hour, the CBO’s estimated range was “a very slight decrease” to a loss of 1,000,000 jobs, with the central tendency being a loss of 500,000 jobs.
Given all the studies on the minimum wage, how did the CBO reach these conclusions? The report explains it.
Several factors influenced CBO’s conclusion about the range of elasticities for teenagers. First, CBO put more weight on studies using certain methodologies than on other studies. Several studies compare employment rates among states that have different minimum wages but otherwise similar labor markets; such analyses plausibly isolate the effects of minimum wages from the effects of national economic changes, such as fluctuations in the business cycle. Other studies try to isolate the employment effects of minimum-wage increases by comparing the national employment rate in years when the minimum wage was high to the rate in years when the minimum wage was low. CBO put the most weight on the studies of state-by-state differences, judging those studies to have estimated more accurately the effects of minimum wages on employment. Changes in state minimum wages are sometimes related to local economic conditions in ways that could lead elasticity estimates based on those changes to be higher or lower than the elasticity that would apply to similar changes in law in the future; CBO considered studies that took a variety of approaches to addressing that issue. (p. 22)
The CBO also, though, took account of “publication bias.” The CBO explains:
Second, CBO considered the role of publication bias in its analysis. Academic journals tend to publish studies whose reported effects can be distinguished from no effect with a sufficient degree of statistical precision. According to some analyses of the minimum-wage literature, an unexpectedly large number of studies report a negative effect on employment with a degree of precision just above conventional thresholds for publication. That would suggest that journals’ failure to publish studies finding weak effects of minimum-wage changes on employment may have led to a published literature skewed toward stronger effects. CBO therefore located its range of plausible elasticities slightly closer to zero–that is, indicating a weaker effect on employment–than it would have otherwise. (p.22)
For more on the minimum wage, see Robert P. Murphy, “Economists Debate the Minimum Wage,” February 3, 2014.
HT to Robert Eger.