Minimum wage increase is barrier to entering the workforce

Original Article:

  • Author: Michael Saltsman

  • Publication Date: May 2016

  • Newspaper: Daily Herald

  • Topics: Minimum Wage

Last week, McDonald’s corporate headquarters in Oak Brook was inundated with protesters bused in by the Service Employees International Union, which is in the midst of a $70 million-plus campaign to unionize the fast food industry.

Thus far, the union’s campaign has failed to yield a windfall of new dues-paying members. It has, however, inspired cities like Chicago to foolishly embrace a minimum wage beyond any historical precedent.

On July 1, Chicago’s minimum wage will increase to $10.50 an hour as it phases into the full $13 mandate. This midsummer wage hike creates yet another barrier to workforce entry for already-frustrated job seekers. The One Summer Chicago program, intended to provide Chicago’s youth with employment opportunities, is woefully under-equipped for the job. According to the program website, roughly 41,300 applicants were not offered employment last year, and only 300 positions were added for this summer.

In total, just 37 percent of applicants were selected for the program, which makes it more competitive than admission to Purdue University.

Census Bureau data paints a troubling picture for those who don’t secure a spot in the mayor’s program. According to data from the Census Bureau’s American Community Survey, teens in the Chicago metropolitan area faced an average 28 percent unemployment rate as of 2014. That’s bad news, but it’s even worse if you’re in the wrong ZIP code. According to ACS data, the average youth unemployment rate for the 60621 ZIP code (the Englewood neighborhood) was a shocking 66 percent.

In West Garfield Park, ZIP code 60624, the average youth unemployment rate rose to 70 percent.

The devastating youth unemployment crisis in these neighborhoods exists for reasons that go beyond the minimum wage. But raising the cost to hire young adults already at the margins of the workforce makes a bad problem worse. As labor costs increase, low-margin employers such as local grocers or diners that can’t raise prices are instead forced to scale back elsewhere.

That means scaling back on customer services by scheduling employees for fewer hours or hiring fewer people altogether.

The evidence isn’t just anecdotal. Economists William Even of Miami University and David Macpherson of Trinity University replicated the methodology used in the nonpartisan Congressional Budget Office’s 2014 report. They found that 770,000 jobs would be lost if legislation mandating a $12 minimum wage were enacted nationwide and found that roughly 28,400 jobs would be lost in Illinois.

Chicago should expect similar results: A 2015 Employment Policies Institute survey of 300 affected Chicago employers found that one-quarter had or would soon reduce staffing levels in response to the city’s minimum wage law.

It isn’t just a job that Chicago teens are missing out on when the minimum wage increases again. They’re missing out on valuable early-career work experience that provides them with an “invisible curriculum” of soft skills like customer service, time management and a sense of urgency that help them throughout their careers.

Economists from the University of Virginia and Middle Tennessee State University found that young adults who worked part-time in high school were earning 20 percent more six to nine years after graduation compared with their counterparts who didn’t find part-time work while in school.

Even more troubling, an analysis from economists at Welch Consulting and the University of North Carolina found that teens who are unemployed today are more likely to be unemployed in the future.

Chicago’s summer program may give hope to a select number of job seekers in the city. But they’d be better served if labor unions and their allies hadn’t put new barriers to the workforce in their paths.

Michael Saltsman is research director at the Employment Policies Institute, which receives support from restaurants, foundations, and individuals.