Teens in New Jersey need jobs, not a raise
Author: Michael Saltsman
Publication Date: May 2012
Newspaper: The Daily Record
Topics: Teen Unemployment
The 40 percent increase in the federal minimum wage between 2007 and 2009 priced more than 114,000 young adults out of a job.
NATIONALLY, our employment numbers are slowly improving. But for young Americans looking to advance their careers and develop marketable skills, there’s been little relief. Teen unemployment still stands at a daunting 24.9 percent, and has been above 20 percent for more than 40 months.
With a tough labor market like this, the last thing teens need is for government to make matters worse. Unfortunately, that’s exactly what’s happening in many states, in the form of well-intentioned but badly misguided minimum wage increases.
Eight states, including New Jersey, are considering proposals to raise their minimum wage — despite a state teen unemployment rate of 26 percent. The poor economy is partly to blame for that rate, of course, but the evidence shows that higher labor costs aggravate the problem.
Economists from Miami University and Trinity University, for instance, studied the impact of the 40 percent increase in the federal minimum wage between 2007 and 2009. Even accounting for the impact of the bad economy, the higher minimum wage still priced more than 114,000 young adults out of a job.
And in a recent study, an economist at San Diego State University examined increases in state minimum wages — including New Jersey’s — and found a greater than three percentage point drop in teen employment following each 10 percent increase.
It doesn’t require an advanced degree to understand this result. The New Jersey restaurants, grocery stores, and retailers who employ people at the minimum wage don’t make money hand over fist like, say, private equity firms. Instead, they keep just a few cents in profit for every dollar made in sales.
When their cost of labor rises as a result of mandated wage increases, the businesses can’t just absorb it. Raising prices on customers typically isn’t an option, especially in a weak economy, so they’re forced to do more with less—as in, less of a workforce.
That’s no hypothetical. New Jerseyans experience the trend every time they bag their own groceries in a checkout lane, or do their own price-check at a retail store. Tech-driven automation is only accelerrated by wage mandates, which make it increasingly attractive to substitute cheap capital for more expensive human labor.
An even higher minimum wage means you can expect more self-service, less customer service — and fewer jobs.
Recent data from the Bureau of Labor Statistics show that people who earn the minimum wage are generally young — about half are under the age of 25. As the number of entry-level opportunities shrinks, the first step on the career ladder for these young adults becomes that much harder to reach. Research suggests that the consequences for this generation are lower wages and an increased risk of unemployment further down the line.
Since New Jersey state legislators have raised the minimum wage many times, they now have the benefit of experience to make an informed decision about their vote. And the evidence makes plain what economists have been telling us about the minimum wage for decades: It’s an anti-employment policy.
Michael Saltsman is a research fellow at the Employment Policies Institute, a Washington, D.C.-based think tank that studies issues affecting entry-level employment.