Iowa Preview: Playing the Expectations Game

After months of speculation about who will run, many debates, and discussion of candidates’ chances, tomorrow, February 1st, we get to learn the first results of the election cycle as Iowa heads to the caucuses tomorrow evening. Although we will be providing rolling analysis as results come in tomorrow, we have also put together this article to help you know what to watch for tomorrow.

Arguably the most important thing to watch for tomorrow is how the candidates do relative to expectations. The first way to track expectations is by looking at win probabilities; if a candidate who is given a small chance of winning the caucuses wins, that win will mean much more than an expected win. FiveThirtyEight has put together what they call a “polls-plus” model1 to assign a probability of winning Iowa to each candidate. PredictWise uses betting market data to derive a similar probability for each candidate.
Win Probabilities for Iowa: Republicans
Win Probabilities for Iowa: Democrats
These two methods produce fairly similar results, but both are worth noting. FiveThirtyEight’s probabilities represent what the polls are showing may happen, so those who follow polling closely will build their expectations to be similar to that model’s. On the other hand, PredictWise uses betting markets, so those probabilities more closely represent the “common wisdom” of what will happen. Because the “common wisdom” is affected so much by media portrayals and how the media spins Iowa will be crucial, it is especially worth paying attention to.

So, what do these probabilities actually tell us? Well, on the Republican side they tell us mainly that Donald Trump is a favorite to win the caucuses. That means that Trump needs to win Iowa or else his campaign will be seen as falling apart. Similarly, despite close polling between Hillary Clinton and Bernie Sanders, Clinton is the overwhelming favorite to win Iowa. However, because she has only a small lead in the polls, a loss by Clinton would probably not affect her as much as a loss by Trump would affect him.

In addition to looking at the probabilities of winning, another key part of playing the expectations game is how a candidate does relative to their polling. To understand this effect, we looked at all candidates in the last three cycles (2004, 2008, 2012) and averaged the three Iowa polls released closest to the Iowa caucuses. We then compared these to actual results of Iowa result to get an “Iowa Result against Expectation.”2 We did a similar three poll average of New Hampshire polls prior to Iowa held their caucuses and a three poll average of New Hampshire for the days after Iowa held their caucuses. This allows us to detect a change in New Hampshire’s polling which can, in part, be attributed to the results in Iowa3. Using this data4, we created the following chart. In this chart, the dot size indicates the actual share of Iowa vote that each candidate won.
Iowa: The Expectations Game
While not incredibly strong, there is clearly a positive correlation between Iowa results against expectation and changes in New Hampshire polls. By looking in the upper left quadrant, it is also very clear that candidates who beat expectations significantly and win a fairly large share of the vote tend to get the strongest boost in New Hampshire. However, to quantify this relationship a bit more, we can run a linear regression through this data.
Iowa: The Expectations Game
By running this linear regression, we find that a candidate who beats expectations by 1 percentage point in Iowa can expect, on average, to improve their standing in New Hampshire by 0.583 percentage points5. So, the effect is not huge, but it is distinct. Certainly, Trump’s and Sanders’ leads in New Hampshire polling are large enough that it seems unlikely for this boost from Iowa to propel anyone ahead of them. However, in the Republican race, Ted Cruz, John Kasich, Marco Rubio, Jeb Bush, and Chris Christie are all so tightly packed that a stronger than expected showing in Iowa (or a weaker than expected one) could change the race significantly.

So, tomorrow when the results start to come in, while everyone will be watching mainly to see who wins, make sure to pay attention to how the candidates perform relative to current polling in order to see how New Hampshire and the rest of the race may shake up. And, of course, join us for our liveblog!

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The Murkiness of the Minimum Wage Debate

Last weekend, the Democrats running for the presidential nomination gathered in Des Moines, Iowa for the second Democratic debate of this presidential election cycle. The field was notably smaller, with Lincoln Chafee and Jim Webb dropping out between the first and the second debate. The debate was fairly uneventful, with most analysts agreeing that the debate will do very little to change the direction of the contest. However, there was at least one important exchange during the debate on the topic of raising the minimum wage. Although all three candidates agreed that it needed to go up, Bernie Sanders and Martin O’Malley want to raise it to $15 an hour, while Hillary Clinton only wants to raise it to $12 an hour. When asked about the potential consequences of a $15 minimum wage, Sanders responded:

Real inflation accounted for wages has declined precipitously over the years. So I believe that in fact this country needs to move toward a living wage. … So I believe that over the next few years, not tomorrow, that over the next few years we have got to move the minimum wage to a living wage $15.00 bucks an hour. And I apologize to nobody.

O’Malley then chimed in with support for a $15 minimum wage and then said that while he was governor of Marlyand, the state raised the minimum wage:

$10.10 was all I could get the state to do by the time I left in my last year. But two of our counties actually went to $12.80. And their county executives if they were here tonight would also tell you that it works.

Clinton defended her proposal for a raise to $12 an hour, explaining:

That is why I support a $12.00 national federal minimum wage. That is what the Democrats in the Senate have put forward as a proposal. But I do believe that is a minimum. And places like Seattle, like Los Angeles, like New York City, they can go higher. It’s what happened in– Governor O’Malley’s state. There was a minimum wage at the state level. And some places went higher. I think that is the smartest way to be able to move forward because if you go to $12.00 it would be the highest historical average we’ve ever had.

It makes sense that all Democratic candidates want to stress their plans to raise the federal minimum wage, which is currently at $7.25 an hour. Roughly 70% of Americans support raising the federal minimum wage, and just over 90% of Democrats are in favor of a minimum wage hike. The problem is, no one is really sure how much.

The motivation behind the moderator’s question in the debate was a recent New York Times opinion piece by Alan Krueger, a Princeton University economist and the former chairman of President Obama’s Council of Economic Advisors, which suggested that a minimum wage greater than $12 would set the country in uncharted territory and could be potentially runious for the economy. However, Alan Krueger’s view is far from the consensus among economists. The Initiative on Global Markets at the Chicago Booth School of Business surveyed 42 prominent economists and found that most economists remain uncertain about the effect of a $15 minimum wage while the rest are pretty evenly split. In spite of the uncertainty of economists in how to raise the minimum wage, the Democratic candidates all came out on Saturday staunch in their policy positions. Only Hillary Clinton acknowledged some level of nuance by admitting that different states have different levels and that may be the best way to do things.

Part of the reason that the minimum wage debate is so complex is because the cost of living is drastically different across the country. Take, for example, my home county of DuPage County, Ill. According to The Living Wage Calculator, a project of Amy Glasmeier of MIT, the living wage1 for a single person is $11.66 an hour. Travel just an hour and a half southwest to La Salle County, Ill. and the living wage is just $9.84 an hour. And yet in both counties, the Illinois minimum wage is $8.25 an hour.

The anecdotal evidence is one thing, but this trend is prevalent across the entire country. In that vein, I have created a series of maps2 to demonstrate the variance in wages across the country. First, we can take a look at the current minimum wage in each state.3
Minimum Wage in Every State
We can compare this to a map of the living wage in every state:
Living Wage in Every County
What is immediately apparent, just by comparing the two maps (which are on the same color scale), is that in most counties, the minimum wage is not nearly as high as the living wage. The exception seems to be some parts of eastern Washington, where the minimum wage is the highest in the country and the living wage is not too high. To get a fuller picture, we can take the difference between the living wage minus the minimum wage to get the following map:
Living Minus Minimum Wage in Every County
There is clearly a lot of variation from county to county in this difference. The county where the living wage most exceeds the minimum wage is Honolulu County, Haiwaii, where the minimum wage is $7.25 and the living wage is $14.66, a difference of $7.41. On the other hand, 21 of the 3143 counties have a minimum wage greater than the living wage, with the largest difference in Pend Oreille County, Washington, where the minimum wage of $9.32 is $0.65 greater than the $8.67 living wage. The mean difference was $2.45, which is fairly clear from the prevalence of green counties in the map.

The point is not to offer any concrete policy prescriptions for how to deal with the minimum wage, although this map shows that by and large, it needs to be raised in order to keep up with the living wage, but rather to suggest that this issue is a lot more nuanced than most politicians are willing to admit. While I can hardly blame Sanders, Clinton or O’Malley for really wanting to get into the messiness of this policy debate when they are only granted 90 seconds to speak, it is important to recognize the complexity of the issue. An additional layer of complexity, which I did not even address in this post, but which is included in Glasmeier’s data, is that the living wage also depends on your marital status and whether or not you have children. The data used in my maps is only for a single person without children, but the minimum wage is the same across the board regardless of if that is the case.

Although last weekend’s debate was fairly clear cut as $12 versus $15, in order to have a productive conversation about this issue on the national level, more nuance and murkiness must enter the conversation. It is hard to say that, across the board, $15 is a living wage or that $12 is a living wage, when really it depends on where you are. Although little will likely change about the rhetoric of the Democratic candidates, we can at least hope that when actual policy is hammered out, lawmakers take advantage of the data available, such as Glasmeier’s, in order to make more informed policy.

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