To put teens to work, lower the minimum wage
Author: Michael Saltsman
Publication Date: August 2012
Newspaper: The Bergen County Record
Topics: Minimum Wage
AS TEENS head back to school this month, any number of parents across the country are breathing a collective sigh of relief. For an alarming number of teenagers, their summer days were spent at home on the couch instead of acquiring work experience at a local restaurant or grocery store.
The teen employment crisis has lasted through a fourth summer, and the unemployment rate for young jobseekers has remained above 20 percent for a staggering 45 months. Local jobs programs for young people have been stymied by tight budgets, and federal efforts have been a Band-Aid at best.
So here’s an unorthodox proposal to put the country’s young people back to work: Let’s make teens less expensive for private employers to hire. Let’s lower their minimum wage.
This won’t be an easy sell, politically speaking. States likes New Jersey, New York and Connecticut entertained serious proposals this year to raise the minimum wage, and Rep. George Miller, D. Calif., and Sen. Tom Harkin. D-Iowa, introduced bills this summer that would increase the federal minimum wage to $9.80 from its current level of $7.25. But despite the momentum among progressives for an increase in wage standards, there’s a far more compelling case to be made for reducing them.
Consider some simple economics on teen employment. Nearly 40 percent of the nation’s employed teens work in the leisure and hospitality industry (e.g. restaurants and movie theaters), and another 25 percent work in retail jobs at grocery stores, service stations and the like. In other words, about two-thirds of the nation’s young people are employed by service-intensive industries where profit margins in the low single digits are the norm.
When the cost to hire and train their workforce rises by 40 percent — as it did when the federal minimum wage increased between 2007 and 2009 — it’s rare that a business owner can just absorb the hit via a hefty price hike on customers. Instead, they try to get more bang for their buck. That might mean having waiters or waitresses bus their own tables, or opting for a self-service alternative to young grocery baggers. It could also mean hiring a more-experienced older employee instead of the less-experienced teen.
The data bear this out: Teens’ share of employment in the leisure and hospitality industry has dropped by 28 percent in the last five years; in retail, it’s fallen by more than 40 percent. Economists at Miami and Trinity universities analyzed the impact of the federal minimum wage increase, and found that more than 114,000 fewer teens were employed as a direct result of the mandate.
If this is what raising wages has wrought, why not go the other direction? The federal government already has a “training wage” law on the books (as do a number of states), and a study published in Cornell University’s labor economics journal found evidence that training wages can moderate the negative employment effects of a higher minimum wage.
Unfortunately, these laws are invariably constrained by the number of calendar days a teen is employed. Legislators could transform the training wage into a permanent “teen wage,” relaxing the calendar day restriction and allowing teens to earn the raise on their own time.
It’s not like teens don’t have the potential. Research published in the Monthly Labor Review finds that the vast majority of people who start at the minimum quickly move beyond it — usually within the first year, according to economists at Florida State University and Miami University. But moving beyond the minimum wage requires job experience, which is what a reduced teen minimum wage could accomplish.
Of course, some will object that reducing the minimum wage will lead to a downward spiral where employees will be forced to work for pennies an hour. But the empirical evidence disproves these claims. For instance, research published by the Public Policy Institute of California found that, even in the largely-unregulated market for day labor, hourly wages were above $11 an hour — without the help of the minimum wage.
Lower wages for young adults in the short term mean higher wages in the long term. Research has shown that a senior in high school holding down a part-time job earns higher wages and better benefits six to nine years later than their jobless counterparts. That means a teen minimum wage that increases job prospects now could pay off down the line.
So let’s lower the minimum wage. It’s a win for teens — and for parents desperate for a bit of peace and quiet next summer.