The Teen Unemployment Crisis: Questions and Answers Why is teen unemployment rising? High minimum wage rates lead to unemployment for teens. One of the prime reasons for this drastic employment drought is the mandated wage hikes that policymakers have forced on small businesses. Economic research has shown time and again that increasing the minimum wage destroys jobs for low-skilled workers while doing little to address poverty. High minimum wage rates price teens out of jobs. When the minimum wage gets boosted, employers frequently cut down on hiring teens who typically fill lower-priority positions. Nearly half of all minimum wage earners are teenagers or young people still living with their parents. Most of the work still gets done, but customers may get stuck standing in longer lines, and teens suffer because they’ve been priced out of the opportunity to work. Employers are unable to afford hire more unskilled and inexperienced workers when the minimum wage increases. Ironically, one of the stated goals of the Fair Labor Standards Act (FLSA) is to “protect the educational opportunities of minors.” However, as labor becomes more expensive for small businesses, managers can afford to hire fewer workers — and that leaves unskilled teens and minorities out of luck. Teen unemployment is three times the national unemployment rate. The percentage of teens classified as “unemployed” — those who are actively seeking a job but can’t get one — is more than three times the national unemployment rate, according to the most recent Department of Labor statistics. Summer teen employment outlook looks bleak. According to the Bureau of Labor Statistics, only 32.6 percent of teenagers ages 16 to 19 were employed in 2008. It was a historic low, down from 45.2 percent in 2000. This year, all the economic indicators point to the unemployment rate rising even further. And that means more bad news for youths looking for work because now they’ll be competing with adults for the same jobs. As New York Times columnist Bob Herbert noted: “Good jobs were hard to find for most categories of workers… One of the results has been that older men and women have been taking and holding onto jobs that in prior eras would have gone to young people. There were not enough jobs to go around before the current recession took hold. So the young, the poor and the poorly educated were already suffering. Now that pool of suffering is rapidly expanding.” – Bob Herbert, “Even Worse for Young Workers,” The New York Times, February 27, 2009 What do experts say? Various studies have found that the minimum wage leads to higher unemployment for teens. A 2006 University of Georgia study found that every 10 percent increase in the minimum wage was associated with a 4.6 to 9.0 percent decline in teenage employment. This finding was corroborated last summer when the 12 percent hike in the minimum wage corresponded with a five percent unemployment spike for teens. Research from Ohio University indicates that a 10 percent increase in the effective minimum wage is associated with a 3.2 percent decrease in youth employment. A 1995 Michigan State University study showed a higher minimum wage was found to increase the number of idle teens—those who neither work nor attend school—by as much as 20 percent. How does the minimum wage affect teens’ futures? High minimum wage rates hurt teens’ chance at learning valuable life skills that cannot be taught in a classroom. When entry-level job hunters are able to find work, they earn more than just a paycheck. They learn valuable life skills like the importance of meeting deadlines, how to report to a manager, and how to get along with coworkers. These are lessons that are not taught in a classroom setting, and the job experience young employees acquire sets them up for future success with promotions and raises beyond the minimum wage. Employers are less likely to hire an inexperienced employee — such as a teen — when the minimum wage increases. However, when the minimum wage climbs, employers seek out experienced applicants because of the higher cost of labor. Companies likely to take a chance on young workers become skittish, and so teens are shut out of the job hunt and the opportunity to learn those life lessons is delayed. Ultimately, giving the cold shoulder to low-skilled teen applicants denies them on-the-job training while providing a raise for the more experienced workers who are able to get those dwindling jobs. What do people say about teen unemployment? The New York Times’ Bob Herbert has chronicled the plight of unemployed teens in his columns. Herbert discusses how unemployment is an opportunity cost in terms of experience, development, and future earnings: “Young men and women who remain unemployed for substantial periods of time find it very difficult to make up that ground. They lose the experience and training they would have gained by working. Even if they eventually find employment, they tend to lag behind their peers when it comes to wages, promotions and job security.” – Bob Herbert, “Even Worse for Young Workers,” The New York Times, February 27, 2009 REALITY: Research from Northeastern University found that teens (especially those who are economically disadvantaged) with no paid employment are more likely to drop out of high school, become involved with the criminal justice system, and to become pregnant. Which groups of teens are affected the most? Economic studies have found that minority teens, especially young black males, are most negatively affected by high minimum wage rates and the resulting unemployment. Young black males are adversely affected by a minimum wage increase. According to economist David Neumark of the University of California at Irvine, for every 10 percent increase in the minimum wage, employment for 16-19 year old black and Hispanic teens falls 6.6 percent. Black and Hispanic teens are more likely to become ‘idle’ from a minimum wage hike. Research out of Johns Hopkins University (2000) showed that black and Hispanic teens in central urban areas are more likely to become idle—that is, neither employed nor enrolled in school—as a result of a minimum wage hike. Minority teens have experienced sharp increases in unemployment since 2000. A 2008 analysis by the Center for Labor Market Studies at Northeastern University found that teens have experienced sharp drops in summer employment rates since 2000. Summer employment rates of black, Hispanics, and white teens fell by 24 to 28 percent over the past 8 years. Do minimum wage hikes affect teen employment more than adult employment? Teens are disproportionately affected in a negative manner by a minimum wage increase. Mandated wage increases are proven to be vastly inefficient. Moreover, there is a general consensus that forced wage hikes lead entry-level employers to eliminate jobs or reduce work hours. Even if jobs are not cut, employers respond to higher labor costs by shifting their hiring focus to better skilled employees or more capital-intensive production, leaving the least skilled out — teens — of the labor market. Who Benefits from the Federal $6.55 Minimum Wage Hike? Does your state have a high teen unemployment rate? What are some solutions to increase teen employment? Index the minimum wage to go down if economy or prices shrink Expand training wage laws. A training wage is lower than the minimum wage and allows an employer to pay an employee less than the minimum wage during a training period in which an employee learns job-related skills. Currently, 20 states do not have a training wage. Suspend minimum wage requirements in times of economic distress.