In Western Europe, the average jobless rate is twice as high in countries with a minimum wage vs. those with no minimumCooper replies:
First of all, as we learned in Statistics 101, there’s a difference between correlation and causation. Even if there appeared to be some pattern between minimum wages and unemployment, that wouldn’t mean that one is in any way causing the other. The only way to try to identify causality is to isolate as many—ideally all—other factors that might play a role in the suspected relationship through statistical regression methods … take a look at the countries that do have minimum wages. If minimum wage laws do lead to higher joblessness, as Perry suggests, one would expect that the higher the minimum wage, the higher the jobless rate. According to this table, that’s not the case in Western Europe. The figure below is a simple scatterplot of the minimum wage rates and the jobless rates from the table. As you can see, under the superficial approach that Dr. Perry is viewing these data, higher minimum wages actually imply lower jobless rates.Note that Greece’s minimum wage is quite low and it has a 27.2% unemployment rate. On the other hand, Luxembourg has a very high minimum wage but its unemployment is quite modest. If we are playing this game, we could also look at the real minimum wage in the U.S. over time comparing it to our unemployment rate. After all – the real minimum wage peaked in 1968, which was also a year where the unemployment rate dropped to 3.4%. David Cooper is not suggesting that higher minimum wages tend to lower unemployment rate, but we are saying that Dr. Perry’s little exercise is silly.