Roll Back Minimum Wage, Watch Teens Get Jobs
Author: Michael Saltsman
Publication Date: July 2010
Newspaper: Indianapolis Star
Topics: Minimum Wage
It’s one of the fundamental laws of economics: When you increase the price of something, you will ultimately decrease demand for that product. With the first anniversary of the recent 40 percent hike in the minimum wage upon us, we see that maxim in effect once again.
A new study by labor economists William Even (Miami University) and David Macpherson (Trinity University) shows that the federal wage hikes implemented between July 2007 and July 2009 were responsible for 114,000 fewer employed teens. Businesses “bought” less labor. In states that felt the impact of the full 40 percent wage increase, teen employment fell by 6.9 percent.
Indiana was emblematic of this nationwide trend. The $2.10 wage increase was responsible for a 7.9 percent decline in the number of employed 16- to 19-year-old Hoosiers. The decline is even steeper for those teens with less than 12 years of education, who suffered an 11.5 percent drop in employment.
That’s a conservative estimate, as it doesn’t take into account employers making longer-term hiring adjustments. As time passes, it’s likely that the total teen employment loss will be even higher.
Why are teens’ job prospects so vulnerable to minimum wage increases? To put it bluntly, it’s because they don’t have many valuable workplace skills. For the most part, they occupy the first rung on the employment ladder, manning cash registers and cooking burgers.
But when the minimum wage is arbitrarily hiked by the federal government, businesses are faced with a dilemma. They can justify paying the higher cost of labor only for employees who have a larger set of skills. Instead of paying teens to do menial work, business owners will shed labor wherever they can find new ways to automate or integrate self-service.
Do you ever wonder why you pump your own gas at Exxon and bus your own trays at McDonald’s and Burger King? Wonder no longer: In businesses with razor-thin profit margins like restaurants and gas stations, it makes more sense to ask the customer to do a little extra work than charge them more for superior customer service. And customers are happy to oblige. When was the last time you pined for the chance to pay an extra dime a gallon for someone to pump your gas for you?
There are real-life consequences for teens who fail to find jobs early in life. They lose out on access to the “invisible curriculum” that these jobs provide: life skills like learning how to deal with coworkers and customers, and the importance of showing up to work on time and working fast enough to be productive.
These first jobs are also a predictor of later success in life; a 2001 Employment Policies Institute study showed that those who experience prolonged unemployment at an early age risk lower earnings and an increased likelihood for unemployment in the years ahead. With June employment data showing that one in five unemployed teens is still looking for work after six months, we should be concerned.
There’s a simple, elegant solution to this problem: Lower the minimum wage for teenagers. It gives businesses an incentive to hire young people and doesn’t cost the federal government a dime. Compared to other boondoggles — like proposals in Congress to spend $1 billion to create 300,000 jobs for teenagers — this answer is a no-brainer: It adds nothing to the national debt, gets our teens back to work, and gets them valuable work experience that will help them later in life.
Saltsman is a research fellow at the Employment Policies Institute in Washington.