The Lost Wages of Youth: Has the Minimum Wage Increase had Unintended Consequences to Teens?

I recently read an interesting article in the Wall Street Journal about youth and the recent increases in minimum wage.  Since 2007, congress has increased the minimum wage 3 times (from $5.15 to $7.25).  Politicians do this because they believe it helps the poor and disadvantaged.  But does this have some negative impact and unintended consequences?

 

According to the Employment Policies Institute, 85% of the people who earn minimum wage aren’t the primary bread winner in a family and are often teenagers.  Looking at the chart below it shows the unemployment rate for teens age 16 – 19 for the past 3 plus years:

 

 

Notice the large increase in unemployed teens.  Obviously, the recession has compounded this problem, but as the article points out:

 

“The third increase was especially ill-timed because it hit while the recession was ending but before employers have felt confident to rehire.  To raise the cost of unskilled labor precisely when the jobless rate is heading toward 10% is an act of almost willful economic stupidity.  A congress that has spent $862 billion to create jobs thus managed with its wage increase to harm tens of thousands of entry-level job seekers.  And it did so in the name of “compassion” and a “living wage.”  In many cases that wage has since become zero.”

 

Some people are calling for our government to establish a teenage or sub-minimum wage, possibly a wage closer to $5 an hour.  I would be curious to know what your organization is doing.  Have you scaled back your entry level hiring?  If the minimum wage was lower, would you be employing more people at this time?  Would a lower teenage rate give you enough reason to hire some additional help? Would it impact your upcoming summer hiring plans?  Contact me and share your thoughts.

Comments

[Krupo]

Seeing the North American approach to minimum wage - an arbitrary slop bucket of spikes in the floor level - it's interesting to compare to Hong Kong where they have gotten by without a minimum wage. Social groups have been pushing to roll a minimum wage out there, and the business groups have pushed back, pointing to the increased unemployment that will result.

I last checked in on the situation last December, but I was impressed by one idea being floated - just start with a really basic floor that's barely a living wage (if that), see what effect it has on employment figures, then raise it a bit higher, measure the outcome.

Life isn't a perfect lab for economic experiments, but the way the idea was presented, it sounded like they just might come up with some smart results.