In North America, the inverse correlation between the strength of the shadow economy and the minimum wage is somewhat strong. As the proportion of the shadow economy decreases, the minimum wage tends to go up.
Findings
- The correlation coefficient between per capita Gross Domestic Product (GDP) in Purchasing Power Parity (PPP) and minimum wage in North America is -0.71.
- As the shadow economy increases in the continent, the minimum wage decreases.
- Yet, Guatemala has the largest shadow economy as a percentage of its overall economy and has the third highest minimum wage.
- Guatemala is the only country whose shadow economy is over half of its overall economy.
- The United States and Canada are the only two countries whose shadow economy takes up less than one-fifth of the overall economy.
Caveats
- As always, correlation does not imply causation.
- Antigua and Barbuda, Anguilla, Aruba, Barbados, Bermuda, Bahamas, Belize, Cuba, Curaçao, Dominica, Grenada, Greenland, Guadeloupe, Haiti, Saint Kitts and Nevis, Saint Lucia, Saint Martin, Martinique, Montserrat, Panama, Saint Pierre and Miquelon, Puerto Rico, Sint Maarten, Turks and Caicos Islands, Saint Vincent and the Grenadines, the British Virgin Islands, and the US Virgin Islands were missing data.
- Minimum wages sometimes vary by profession and other variables.
Details
This dataset is pretty interesting because if the United States and Canada were not included the correlation would be direct between the strength of the shadow economy and the minimum wage. Excluding the United States and Canada, as minimum wage increases, so does the shadow economy.
It seems pretty obvious by looking at this data that there is no relationship between the two variables, even though the coefficient is pretty high.
Country Codes
| Code | Country | Annual Minimum Wage | Shadow Economy (as Percentage of GDP) |
|---|---|---|---|
| CA | Canada | 16,818 | 15.6 |
| CR | Costa Rica | 6,603 | 25.9 |
| DO | Dominican Republic | 1,879 | 32.1 |
| GT | Guatemala | 7,197 | 51.0 |
| HN | Honduras | 4,431 | 49.3 |
| JM | Jamaica | 4,086 | 35.3 |
| MX | Mexico | 2,401 | 29.8 |
| NI | Nicaragua | 3,474 | 44.7 |
| SV | El Salvador | 2,194 | 45.4 |
| TT | Trinidad and Tobago | 5,598 | 35.7 |
| US | United States | 15,080 | 8.6 |
Sources
US Department of State. 2017. "Country Reports on Human Rights Practices for 2016." Accessed September 2, 2017. https://www.state.gov/j/drl/rls/hrrpt/humanrightsreport/index.htm#wrapper.
Schneider, Friedrich, Andreas Buehn, and Claudio E. Montenegro. 2010. "Shadow Economies All over the World: New Estimates for 162 Countries from 1999 to 2007." The World Bank Development Research Group.