Minimum wage hikes contribute to teen unemployment

  • Author: Michael Saltsman

  • Publication Date: July 2011

  • Newspaper: Detroit Free Press

  • Topics: Minimum Wage, Teen Unemployment

I have good news for you: Your kids have plenty of time to hone their skills as amateur film critics. They’ll be free to check out the latest mainstream and art house offerings like “Cowboys and Aliens” and “Midnight in Paris.” Perhaps their studies will inspire them to become amateur filmmakers, like the teenage tyros in “Super 8.”

The bad news is that they’ll only be able to indulge in this hobby because teen unemployment continues to be so high: The Bureau of Labor Statistics reports that teen unemployment jumped to 25.8% in June.
In Michigan, the teen unemployment rate averaged 27.6% as of May of this year. And those numbers only include teens actively looking for work. If you include teens that have simply given up, the number climbs to 29.1%.

Across the country, teen unemployment is at or near a historic high. So why have we seen such an increase in out-of-work teenagers?

A tough economy certainly hasn’t helped. Things are tight all over. But there’s more to the story than tough luck across the board.Government, at both the state and federal levels, seems to have out its way to make the job market for teens tighter than ever before by enacting minimum wage increases.

Between the 40% hike in the federal minimum wage between 2007 and 2009 and more recent state- and city-level increases across the country, teens get cut out of the loop when the wage floor goes up. William Even of Miami University and David Macpherson of Trinity University controlled for the economic downturn and discovered that the last federal minimum wage increase led to 114,000 fewer employed teens.

This comes as no surprise. Studies have shown time and again that minimum wage increases hurt those with the least skills the most. David Neumark University of California-Irvine and William Wascher Federal Reserve Board, who literally wrote the book on this issue, found that 85% of the best studies on the subject point to a drop in employment as a consequence of minimum wage hikes.

Some people lacking in job skills and experience suffer more than others when the minimum wage goes up. In a separate study for the Employment Policies Institute, Even and Macpherson discovered substantial differences in the effects of the minimum wage across demographic groups: Each 10% increase in the minimum wage led to an employment decrease of 6.5% for blacks who are 16-to-24-year olds without a diploma; for whites in that age range, the figure was only 2.5%.

Businesses that rely on minimum wage labor like restaurants, gas stations, and grocery stores have low profit margins and high customer sensitivity to prices. Just think of your reaction to each 25 cent hike on a gallon of gas. Over time, these industries introduce self-service — self-checkout lanes at grocery stores, self-service soda fountains — and automation like paying at the pump to offset higher hourly wages.

Unemployed young adults are losing out on more than spending money. Studies have shown that teen unemployment has a lasting impact: This is the time when young workers learn the “invisible curriculum” of the workplace, little things like learning how to function as part of a team, the importance of showing up on time, and how to increase productivity. Studies show those who undergo extended bouts of unemployment as teens are at risk of earning less and have an increased likelihood for unemployment in the future.

Hollywood is here, however, to keep your kids busy. Who needs a job when you have the movies?

Michael Saltsman is the research fellow at the Employment Policies Institute, a business-backed nonprofit research group that studies public policy issues surrounding entry-level employment.