High Minimum Wage Means High Teen Unemployment

  • Author: Michael Saltsman

  • Publication Date: December 2010

  • Newspaper: San Jose Mercury News

  • Topics: Minimum Wage, Teen Unemployment

It was a pretty miserable summer for California teenagers, and not just because of having to drive annoying younger siblings around. The real problem was a sky-high unemployment rate that deprived teens of the chance to earn some spending money and, more important, kept them from learning essential life skills.

Now the holidays are upon us, and the teen employment crisis remains. Teens looking for some extra cash during their school break will have a very hard time finding an opportunity.

Across the country, more than one in four teens who are looking for work can’t find it. In California, the situation is much worse: Teen unemployment was averaging 35 percent as of September.

Why are so few teens employed? A variety of factors are in play. The poor economy hasn’t done anyone any favors. Total employment fell by more than 700,000 in the Golden State between January 2009 and January 2010, and the labor market hasn’t seen much improvement since then. The state’s teens have undoubtedly felt the consequences.

But California legislators self-inflicted an avoidable wound by raising the state’s minimum wage to $8 an hour in 2008 — still one of the highest in the country.

Economists have long understood that a higher minimum wage prices less-experienced teens out of the work force. A recent national survey of labor economists found almost three-quarters in agreement that a higher minimum wage means fewer entry-level jobs.

New research from Walter Wessels (North Carolina State University) and Nicole Coomer (Workers Compensation Research Institute), sponsored by the Employment Policies Institute, finds that employment losses in response to a minimum-wage increase are particularly large for teens working jobs that pay the minimum wage.

The researchers looked at 15 years of employment data and found that a 10 percent increase in the binding minimum wage reduces employment for 16- to 19-year-olds in jobs paying the minimum by as much as 11.1 percent.

Here’s where things get interesting: Teen job losses can be mitigated by businesses that aren’t covered by the wage law. For instance, many small and medium-sized establishments aren’t covered by the federal minimum wage statute and can still pay inexperienced teenagers a wage commensurate to their skill level. They absorb some of the less-skilled workers let go when the minimum wage is increased.
Wessels and Coomer found that the existence of these businesses helps limit total teen job loss to a more moderate 2.3 percent. But this safety valve is not available in states that have mandated a minimum wage higher than the federal level, including California.

Teens are vulnerable to increases in the minimum wage because they have so few skills. When the cost of their labor goes up, employers with tiny profit margins in competitive industries like restaurants and grocery stores turn to increased self-service. Why do you think you bus your own trays at Burger King and have started to bag your own groceries at some supermarkets?

When young people can’t find work, they lose out on skills in the so-called “invisible curriculum,” little things like learning the importance of showing up to work on time, taking direction from supervisors or learning to deal with co-workers. Studies have shown that teens who fail to develop these skills early risk lower future earnings and an increased likelihood for extended bouts of unemployment.

California legislators can’t undo federal policy, but Wessels and Coomer have shown that they can help cushion the damage done to teen job prospects. They should keep this in mind the next time a colleague or a special interest group proposes a statewide minimum wage increase.

MICHAEL SALTSMAN is the research fellow at the Employment Policies Institute, a nonprofit studying public policy issues surrounding entry-level employment. He wrote this article for this newspaper.