A Non-Technical Guide to Econometrics

Chris Auld has an excellent piece on his blog regarding interpreting the “competing” Seattle minimum wage studies from the University of Washington and UC Berkeley.  It’s long, but very much worth the read.  In fact, it’s probably the best short introduction to statistics/econometrics I think I’ve read (another great one is Chapter 1 of Robert Abelson’s Statistics as a Principled Argument.  I’m also a big fan of Angrist & Pischke’s Mastering ‘Metrics).

Allow me to highlight two items in particular from this blog:

There is no statistical magic which can fully overcome these fundamental [causal] problems.  We will never be able to “prove” what the effect of the minimum wage was: that’s not the way statistics work in general, and in a case study like `what was the effect of the 2015 increase in minimum wages on employment in Seattle?’ the best we can hope for is to bring some suggestive evidence to the table. [Emphasis added]


In other words, what they Berkeley team means when they report “no effect” on employment is not that there is no effect on employment (yes, that is confusing).  What they mean, again, is that there is no statistically significant effect on employment, whereas the UW team, using different data and somewhat different statistical methods, finds a statistically significant effect.  But the difference between statistically significant and statistically insignificant is often itself not statistically significant.

One team found there were no statistically significant effects on employment, but that result should not be misunderstood as a claim that the study “proves” the effect was actually zero… [original emphasis]

Any additional commentary I add here will only detract.  Read Dr. Auld’s post.  It’s excellent stuff.

H/T: Michael Enz

6 thoughts on “A Non-Technical Guide to Econometrics

  1. But that misses the point. The proponents of the minimum wage dishonestly claim that the law of demand does not apply to wages. It would be one thing if they were honest and said, “Look, the number of people priced out of a job is an acceptable price to pay for giving wage protection to those still employed”. But they don’t. If I can get you to concede that 2+2 is not always exactly 4, but sometimes a little more or less, then I can go on to construct magnificent looking skyscrapers — that will topple over in a high wind.


  2. Couple of points that I wanted to note. The first is that youth unemployment, despite an overall unemployment rate of 3% is 13% in Seattle. Second, youth unemployment remains such an issue that the mayor of Seattle actually has proposed youth employment programs to mitigate the problem. Finally, legislation of this nature has taken a relatively long time to go into effect, but it would not have been unreasonable for many to anticipate changes in the minimum wage would be made in some form. I have to wonder how many economic actors, forseeing a higher future minimum wage, acted in anticipation of such?


    • Craig

      I have to wonder how many economic actors, forseeing a higher future minimum wage, acted in anticipation of such?

      Good point. Probably all of them. This is an issue often overlooked by researchers claiming to find no job loss when a min age increase takes effect. Why would anyone wait until they are hit with higher payroll costs to start planning their future?


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