Do Minimum Wage Hikes Cause Recessions?

Do Minimum Wage Hikes Cause Recessions?

Tyler Cowen provides this chart about teen employment and minimum-wage hikes from Kevin Erdmann, along with Erdmann's comment: "Is there any other issue where the data conforms so strongly to basic economic intuition, and yet is widely written off as a coincidence?"

I'm no economist, and I tend to share the intuition that minimum-wage hikes reduce employment to some degree, but put me in the coincidence camp here. All of the huge drops in teen employment coincide not only with hikes in the minimum wage, but also with recessions. So unless minimum-wage hikes are so harmful as to cause recessions, I don't think there's much evidence of a bad effect on employment here.

We can see this more clearly by plotting the unemployment rate for teens against the total unemployment rate. Teen unemployment is more volatile, as would be expected for any number of reasons, but it tracks total unemployment quite well; it doesn't suddenly spike after minimum-wage hikes while overall unemployment barely moves, as we'd expect if minimum-wage hikes were causing the trend above:

I'm not quite sure what it tells us (beyond that the teen rate is more volatile), but for what it's worth here's the difference in percentage points between the two rates:

And here's the difference as a ratio:

Robert VerBruggen is editor of RealClearPolicy. Twitter: @RAVerBruggen

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