Summer wage hikes punish young adults
Author: Michael Saltsman
Publication Date: July 2016
Newspaper: Detroit News
Topics: Minimum Wage
Last week’s jobs report brought the good news that the economy added 287,000 jobs in June. But for those who read the fine print, the report was less encouraging. In the last five months, the unemployment rate for black youth jumped by 8 percentage points to 31.2 percent. To put this in real numbers, June saw 60,000 more black teenagers looking for work and unable to find it than in February.
If policymakers are looking for a cause for this crisis, one place to start is the wave of state and local minimum wage increases sweeping the country.
The Congressional Budget Office sounded the alarm in its May report on the employment prospects of working-age young men. According to the CBO, one in six working age young men is either incarcerated or unemployed; for young black men, this number jumps to almost one in three. Among the causes identified by the CBO for this jobs crisis were increases in the minimum wage.
Despite the desperate job market for less-skilled employees, states and cities can’t seem to kick the minimum wage habit. On July 1 of this year, minimum wage hikes went into effect in Maryland, Oregon, Washington, D.C., and a dozen localities across the country. (Michigan’s wage floor rose on Jan. 1, and will rise again in January of 2017 and 2018.) The consequences are as tragic as they are predictable: When low-margin employers are confronted with higher labor costs, they’re forced to reduce job opportunities when cost-conscious customers are unwilling to pay higher prices.
That goes double for the new generation of minimum wage increases, where numbers of $15 or higher have been endorsed by left-of-center legislators. (For context, $15 is more than double the inflation-adjusted historical average minimum wage in the U.S.) A 2015 University of New Hampshire survey of U.S. labor economists found that 83 percent believe a $15 minimum wage will have a negative effect on youth employment levels, and that 76 percent believe that hikes have a negative effect on the number of jobs available.
These consequences hurt some young people more than others. A 2011 study by labor economists William Even and David Macpherson examined the effects of the state and federal minimum wage hikes by race and ethnicity. Looking specifically at 16-to-24 year-old males without a high school diploma, the authors found that each 10 percent increase in a federal or state minimum wage decreased employment by 2.5 percent for white men in that group, 1.2 percent for Hispanic men, and a troubling 6.5 percent for black men.
These unemployed teens are missing out on the benefits of early work experience. A 2014 study by Christopher Ruhm and Charles Baum found that, for a young adult in high school at the turn of the millennium, 20 hours of part-time work per week in their senior year resulted in annual earnings that were 20 percent higher 6-9 years after graduation, as compared to their fellow students who didn’t work.
The June jobs report shows that the structural problem of low teen labor participation is hurting America’s youth and low-skilled workers. More wage hikes will only make the problem worse. Instead of adding more hiring barriers for the least skilled in order to appease their allies in the labor movement, lawmakers should focus on making it easier for America’s youth to succeed.
Michael Saltsman is research director at the Employment Policies Institute.