Minimum Wage Hikes Cost Teens Jobs
Author: Michael Saltsman
Publication Date: May 2013
Newspaper: San Antonio Express-News
Topics: Minimum Wage
Texas parents, prepare yourselves: With a 21.8 percent teen unemployment rate heading into the summer, your jobless kids might be making frequent withdrawals from the Bank of Mom & Dad.
A number of factors are at work: More competition from older jobseekers, for instance, has put young applicants at a competitive disadvantage. But also at fault is a series of ill-conceived minimum wage mandates at the state and federal level, which raised the cost to hire and train teens.
Those same teens can only hope that President Barack Obama and Congress won’t make it worse by following through on another proposed increase.
Nationally, teen unemployment has been above 20 percent every summer since 2009. That’s four consecutive summers of record teen unemployment. They’ve all occurred during or since the 40 percent hike in the federal minimum wage between 2007 and 2009.
The timing is more than just coincidence. Writing in 2010, university economists at Miami and Trinity estimated that at least 114,000 young adults lost job opportunities as a result of the federal wage hike.
This came out to a 6.9 percent drop in teen employment in states affected by all three stages of the federal wage hike. For teens with less than 12 years of school, the relative drop in employment was even higher at 12.4 percent.
Nearly 40 percent of the nation’s employed teens work in the leisure and hospitality industry, while another 25 percent work in retail jobs. These types of businesses aren’t exactly rolling in dough. Their profit margins are generally 2 or 3 cents on every sales dollar. Sudden spikes in labor costs —like a 40 percent jump in the minimum wage in two years — leave them with two options: Raise prices or reduce costs.
When raising prices isn’t an option — good luck with that in a rough economy — the only other option is to provide the same product with less service. This might mean having waiters or waitresses bus tables, or opting for a self-service alternative to young grocery baggers.
The data bear this trend out: Teens’ share of employment in the leisure and hospitality industry dropped by more than 20 percent between 2007 and 2011. In retail, it’s fallen by nearly 30 percent over that period.
This makes it more baffling that wage hike advocates in Congress, seeking to fulfill the president’s State of the Union call for higher rates would raise the minimum wage by 40 percent to $10.10.
This may be good politics, but it’s not good policy. Teens start climbing the employment ladder through their first summer jobs. Further minimum wage hikes delay their ability to get these jobs, which hurts their professional development.
That might not seem pressing to the teens who lounge on the couch for the next three months. But it is concerning for their parents, who want a good future for their kids.
Michael Saltsman is the research director at the Washington, D.C.-based Employment Policies Institute.