The wages of guessing

One of the first things the Democrats did in 2007 when they took control of Congress was raise the minimum wage.  And it was not a one-time deal; their legislation would mandate a minimum wage increase each year for the next three years: 2007, 2008 and 2009.  The federal minimum wage becomes $7.25 this July 24, up from $5.15 just two years ago .

I constructed the graph below from Bureau of Labor Statistics data.  The more steady line is three times the federal minimum wage over time (to get the scales to match).  The more jagged line is the teen unemployment rate (ages 16-19) over that same time. 

The correlation coefficient between the minimum wage and teen unemployment is 0.77, a fairly strong correlation.  The correlation coefficient with overall unemployment is 0.67, also fairly strong.

We all know that correlation is not causation.  No one is saying that increasing the federal minimum wage causes increased unemployment.  It could just be, for example, that a third force, such as a Democrat controlled Congress, caused both trends separately: an increase in the minimum wage, and an increase in unemployment.

Then again, it could be total chance.  That unemployment was trending down the whole time Republicans held both houses of Congress (from 6.0% in December 2002 to 4.4% in December 2006), and then shot up just as Democrats took over (from 4.4% to 9.5% so far), could just be total coincidence.

We'll have to ask Joe Biden what his guess is.