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Robert Higgs on Minimum Wage Studies

From his Facebook page:

Suppose you wanted to know how many of the soldiers who served in World War II were killed in that war. So you sent inquiries to a random sample of veterans of that war, asking: were you killed in the war? I presume that all of those who responded to the survey would reply, no. Having conducted your scientific poll, you could then conclude that none of the soldiers who participated in World War II were killed.

The mistake you would have made in this case is known as the result of survivorship bias. It affects many sorts of studies, including many where the study design is not so obviously stupid as in my foregoing example. Surveys have sought, for example, to determine how an increase in the legal minimum wage affected employers’ amount of.employment. Such a forced wage increase, especially if it were a large one, might well cause some firms to go out of business. They would then be unavailable to respond to a poll or other survey to indicate that the increased minimum wage had caused them to reduce their employment to zero, wiping out however many jobs they had previously maintained.

You might think that any well-trained economist would be aware of survivorship bias and would not draw unwarranted conclusions by failing to take it into account in designing or conducting a study. But if you thought so, you’d be wrong. Mainstream economists, including super-duper econometricians, not uncommonly make this freshman mistake.

Published in C.Jay Engel