MINIMUM WAGE & TEENAGE UNEMPLOYMENT

By Spencer

With the jump in the unemployment rate today the old line that increases in the minimum wage causes teenage unemployment to rise is being tossed about..

So look at the record. We have a long record to compare the teenage unemployment rate and the minimum wage. If you look at the two series you see a very inconsistent record. Sometimes a rise in the minimum wage is followed by a drop in the teenage unemployment rate and sometimes it is followed by a rise in the teenage unemployment rate. Essentially, the correlation between the teenage unemployment rate and changes in the minimum wage is zero, strongly implying that there is no causal relationship.

So what drives the teenage unemployment rate. It sure looks like it is the business cycle. If you compare the teenage unemployment rate and the total unemployment rate you see that there is a very strong correlation. The correlation between the teenage unemployment rate and the total unemployment rate is 0.9. Yes, correlation is not causation. But if you look at the long term record it is very hard to conclude that the teenage unemployment rate is a function of the minimum wage. Rather, the evidence very strongly implies that the teenage unemployment rate is driven by the business cycle.

I’ll leave it to others to do the econometrics and demonstrate how to weight each. But, all those like Larry Kudlow blaming the current rise in teenage unemployment on the rise in the minimum wage rather then the business cycle need to to prove their argument.

P.S. here is a chart of teen employment and the real minimum wage.

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