How to really help out-of-work young adults

Original Article:

  • Author: Michael Saltsman

  • Publication Date: February 2016

  • Newspaper: OC Register

  • Topics: Minimum Wage

President Obama’s fiscal year 2017 budget proposal, released last week with a $4.1 trillion price tag, contains a number of bad ideas and at least one good one: A program to help the country’s out-of-work young adults find a job.

The president is right to be concerned about the plight of job-seeking young people. The $5.5 billion cost of his teen jobs initiative is best viewed as a past-due bill for years of White House advocacy promoting a higher minimum wage.

Bureau of Labor Statistics data paint a troubling picture of the entry-level job market. While the unemployment rate for teens aged 16-19 has fallen back to its prerecession level of 16 percent, over 1.2 million fewer of these teens are employed today. In other words, the statistical improvement in the unemployment rate has come at the expense of thousands of discouraged teens who’ve stopped looking for work altogether.

California’s teen unemployment rate still averages a staggering 21.1 percent. This is nearly four times greater than the state’s overall unemployment rate of 5.8. Even more alarming is the year-over-year spread in unemployment rates between white and black teens: White teens in California face an unemployment rate of 19.8 percent, while black teens face a rate almost double that at 36.2 percent.

The White House fact sheet on its new program was light on details about the cause of this crisis, referring vaguely to “challenging” circumstances faced by “too many young people.”

Let’s be specific: Among these challenges are policy changes at the state and local level, passed with the approval and encouragement of the Obama administration, that set the starter wage for a young adult as high as $15 an hour.

The administration was stymied in its own 2013-14 push to raise the federal minimum wage to $10.10 an hour. (A Congressional Budget Office report put the price tag of that policy at a half-million lost jobs.) Instead of reconsidering the wisdom of this approach, Labor Secretary Tom Perez took the show on the road, “stressing the need for higher minimum wages, particularly at the state and local levels.” The Huffington Post reported that he’s visited more than 40 states during his two years in the job.

Cities in particular have taken the administration’s cue: From Seattle to San Francisco and Los Angeles on the West Coast, to Chicago and Louisville in the Midwest, to Washington, DC in the East, there’s been a foolish race to see how high the starting wage can go, and how quickly it can get there.

Perez and the White House can’t take credit for all of these wage hikes, but they’ve praised their passage even as newspaper stories trumpet the predictable bad news of closed businesses and lost job opportunities for young adults.

One Seattle furniture store owner described the consequences of her city’s pending $15 minimum wage this way: “We won’t offer part time jobs for students or entry level into our industry, you will only be able to work here coming in with a complete skill set.”

Of course, it’s exactly those people who lack a “complete skill set” who are most in need of the starter job opportunities that the president wants to spend a couple of billion dollars to create. The consequences of missing out are clear. Christopher Ruhm of the University of Virginia and Charles Baum of Middle Tennessee State University conclude that those with part-time work experience in high school earn about 20 percent more annually a decade after graduation, compared to those who didn’t work.

It’s a valuable lesson for the White House’s next occupant: Instead of spending money to paper over the consequences of bad public policy like a higher minimum wage, quit supporting it in the first place.