Friday, June 12, 2009

Minimum Wage: Teenage Job Killer

Despite severe economic difficulties confronting businesses, and soaring unemployment among youths and minorities, the federal minimum wage is slated to increase to $7.25 in July from $6.55 today. This will be the final step of a three-step increase enacted in the spring 2007, when the unemployment rate was 4.5%. Based on 20 years of research, I doubt there is ever a goodtime to raise the minimum wage. However, with the aggregate unemployment rate at 9.4%, the teen unemployment rate exceeding 22%, and the unemployment rate for black teens nearing 40%, next month's increase seems like the worst timing possible (see chart above).

The accumulated evidence undermines the case for minimum wages even in the best of times. I recognize that there is continuing debate about some of the effects of minimum wages, and that strong public support for higher minimums -- regardless of the evidence -- will likely lead to future increases.

But let's put aside the broader debate and focus on the narrower question: Should we raise the minimum wage in the worst of times? When so many people -- especially the young -- are struggling to find a toe hold in the labor market, does it really make sense to make it harder for employers to hire them? I do not expect President Obama or congressional Democrats to give up their long-held support for a higher minimum wage. However, they should delay the increase in the minimum wage scheduled for this summer.

~David Neumark in today's WSJ


The high rate of unemployment among teenagers, and especially black teenagers, is both a scandal and a serious source of social unrest. Yet it is largely a result of minimum wage laws. We regard the minimum wage law as one of the most, if not the most, antiblack laws on the statute books.

~Milton Friedman in Free to Choose


The idea of using a minimum wage to overcome poverty is old, honorable - and fundamentally flawed. It's time to put this hoary debate behind us, and find a better way to improve the lives of people who work very hard for very little.

~NY Times "The Right Minimum Wage: $0.00" (1/14/1987)

30 Comments:

At 6/12/2009 11:23 AM, Anonymous Benjamin said...

In general, I oppose gov't interference in the marketplace. However, the minimum wage today is well below the levels of the 1960s, adjusted for inflation.
I find it hard to believe that after a half-century of progress, we can't leave a few more crumbs on the table for our least talented employees.
I also believe in magnifying the differences between working and not working, within reason. I support less welfare etc., but higher wages and lower taxes on the low-scale of the working class.
The Catholic Church, in the idelology-obsessed 1950s, took what then was an uncontroversial stand: It would take no position on wages, but only that a day's wages should support a modest family.
How far we have sunk from even that minimum objective.

 
At 6/12/2009 12:02 PM, Anonymous Anonymous said...

This is a 60 year chart of teenage unemployment. Can you pinpoint the minimum wage increases? LOL

 
At 6/12/2009 1:08 PM, Blogger fboness said...

"In general, I oppose gov't interference in the marketplace."

Nothing in your comment supports that statement.

"I find it hard to believe that after a half-century of progress, we can't leave a few more crumbs on the table for our least talented employees."

A profoundly disconnected statement. Where do "crumbs" come from? You dismiss, in a hand waving way, the productive labor of workers and then claim a right to give those "crumbs" to others. Why don't the workers who have produced those "crumbs" get to keep them? "Fifty years of progress" have pretty well demolished the idea of socialist redistribution except among a few dead enders.

"A day's wages should support a modest family."

The productive work of a day should produce enough to support a modest family. Find a job that's worth your time.

 
At 6/12/2009 1:37 PM, Blogger Ironman said...

Higher minimum wages cause otherwise inexplicable youth unemployment. Consider 2007, when an otherwise robustly growing economy throughout most of the year was specifically shedding minimum wage jobs, primarily those held by teens. Here's a quick revamp of the Economic Detective series of posts we did looking into this anomaly:

* Natural Causes, or Not
* Victim Autopsy
* Lining Up the Suspects
* Prime Suspect Revealed
* A Final Gruesome Discovery

What can we say? We don't often get a chance to combine economics with a good old-fashioned style detective story....

 
At 6/12/2009 1:59 PM, Anonymous Αμάτι Nώνυμος said...

You are a better Ghungha Dihn than I am teen worker. Perhaps this will help you to find exciting job with friendly co-workers of like age and interests. Good luck

Ask your congress-people to apply the minimum wage to only the foreign workers on work visas. Such enforcement will get them out of the work area so that you can have a go.

Other hack would be to hitch a ride to Nebraska and to the task of de-tasseling the corn. Then on to Montana, Hannah, to punch cows until school starts. Please don't forget to come back to school. Your friendly school m'arme has a very important H1N1Swine virus for you to pass around.

Do not risk failing grade on that.

 
At 6/12/2009 3:44 PM, Blogger sethstorm said...


It's time to put this hoary debate behind us, and find a better way to improve the lives of people who work very hard for very little.
--
A day's wages should support a modest family.


In this age, those statements are code for sending jobs to Third World countries where un-enlightened(read: the worker is the problem that must be managed) company towns are still rampant.

Would the addition "...in the Third World" to those statements make it less current?

 
At 6/12/2009 4:10 PM, Anonymous Benjamin said...

Hey, we all believe in free enterprise and the price mechanism.
There is also something called a social contract.
Sure, go ahead, eliminate the minimum wage, and tax working people heavily.
It might even work for a while.
It also might spur a backlash, and Euro-style socialism. People do vote, you know. Or will, if things get bad enough.
It is a tough nut, I concede. But what do you tell a working class guy?
I detest Chavez of Venezuela. But if I had a family, and Chavez says he will provide national health insurance, and the other guy says, "If your family gets sick, we let the free market handle it," then who do I vote for?
We saw who they voted for.
So, that's why I say, "better to throw some crumbs" to working people than "free market all the way."
People do vote. Better to make some concessions to smooth some rough edges.
Or maybe you don't like democracy either.

 
At 6/12/2009 5:00 PM, Blogger Robert Miller said...

This comment has been removed by the author.

 
At 6/12/2009 6:00 PM, Blogger 1 said...

"There is also something called a social contract"...

There's no such thing... That phrase is just code for today's liberals wanting to spend someone else's money...

Explaining liberalism to liberals

"eliminate the minimum wage, and tax working people heavily"...

Does your definition of 'working people' include those who leech off the more successful among us?

"It also might spur a backlash, and Euro-style socialism"...

Sort of like what's happening today, right?

 
At 6/12/2009 6:27 PM, Anonymous Benjamin said...

1-
You said it yourself. We are getting a backlash today, and perhaps moving towards Euro-style socialism.
You are proving my point.
Remember, people vote. If a system doesn't work for most of the population, why should they vote for it?
Should people support a principle or ideology that does not work for them?
Wealth is not distributed in America purely by free-market principles anyway. The tax code is a world unto itself, not even understood by professional tax preparers, who (according to the WSJ's annual report) file different returns for the same hypothetical filers.
Making money in America at times has elements of the Gong Show. We all know it.
Better to keep the bottom half a little bit happy. Sometimes you have grease a few palms to make everybody in the tent happy.

 
At 6/12/2009 6:29 PM, Anonymous Anonymous said...

The minimum wage allows a few people to get more at the expense of many people getting nothing. Our least talented employees can only get crumbs by taking from the people who ARE talented and deserving of the money. If a government controls all wages, further distortions occur including a decrease in output, slowed productivity gains and a decrease in overall tax revenues. These things are not what we need in the current economic climate.

 
At 6/12/2009 7:21 PM, Blogger 1 said...

"You are proving my point.
Remember, people vote. If a system doesn't work for most of the population, why should they vote for it?
"...

No actually I'm not...

I'm showing YOU that after forty plus years of very expensive federal intervention in the public school systems through out the nation has been an ongoing disaster...

The schools are little more than government madrassas that are funded by huge amounts of extorted tax dollars and produce students and alumni who's collective inability to understand what they voted for back in Nov. of '08 is now on display...

 
At 6/12/2009 8:23 PM, Blogger Robert Miller said...

This comment has been removed by the author.

 
At 6/12/2009 8:31 PM, Blogger fboness said...

Back in the day (I'm old) when the minimum wage was $1.10 there were people hired to pump gas for you at gas stations. Quaint notion of service, eh?

Today, the minimum wage is substantially higher and no one is hired by gas stations to pump gas (and clean your windshield, check your oil, etc.)

All that still gets done but, now your gas gets pumped, your windshield gets washed, and your oil gets checked by you at the true minimum wage of zero.

At every level of forced minimum wage there is a corresponding level of jobs either automated or eliminated.

 
At 6/12/2009 8:39 PM, Blogger fboness said...

"Trust me: a fifteen cent bullet in my $500 handgun will solve the problem of some thug taking several thousand dollars away from me."

I can't even trust you to know the difference between a bullet and a cartridge or a handgun and sidearm.

Clearly you haven't been shopping for ammunition lately or you would know that fifteen cents is unrealistically cheap.

 
At 6/12/2009 8:59 PM, Blogger Alan said...

Funny how Benjamin showed up and keeps saying that he's a free market guy and for getting rid of some wasteful spending programs ( "we all believe in free enterprise and the price mechanism"), but in the end, he keeps coming back to liberal 60's dogma.

What is it Benjamin? Did you get assigned to this site to disrupt the people who aren't loyal followers of the Obama agenda? Are you getting paid or is this pro bono?

Seriously, I can't believe anyone is arguing about the effects of the minimum wage.

 
At 6/12/2009 9:12 PM, Anonymous Ian Random said...

I believe there was a widespread study on the east coast before and after minimum wage increase, they didn't find any change in employment. That's a big duh, because there is something called sunk costs. I think it was the owner of a pasta establishment summed it up by saying that she would not expand in the state with a higher than federal minimum wage. I think the bigger question is the rate of growth.

 
At 6/12/2009 11:03 PM, Anonymous Anonymous said...

When I was a teenager I picked sweet corn, apples and peaches and got paid by the bushel. I also walked beans, picked rocks and mowed yards. One summer I worked as a dishwasher another summer I was a driver. Only the last got me minimum wage.

My sons both worked on detasseling crews, hand cultivation and other farm chores. One worked for a mover, the other worked in a warehouse. One worked a summer painting houses. Both worked at the local convenience store.

Lots of physical labor in those jobs. And the major benefit is that one learns to work.

Here in rural Minnesota a lot of these low skill farm jobs such as picking rocks and walking beans aren't done by hand any more - there are mechanical rock pickers and the job of manually hacking weeds and volunteer corn is now done with spray rigs.

I suspect these methods are cheaper than the old manual labor way of doing it. What I don't know is whether it is another unintended consequence of the minimum wage law or whether it's because the farmers can't get anybody to do this work for what they can pay.

 
At 6/12/2009 11:11 PM, Blogger Robert Miller said...

This comment has been removed by the author.

 
At 6/12/2009 11:20 PM, Blogger Robert Miller said...

This comment has been removed by the author.

 
At 6/13/2009 4:36 PM, Blogger 1 said...

An increase in the minimum wage has several distinctive negative effects on the economy. While the wages of some low skilled workers would improve, it would reduce employment opportunities for teenagers and other lower skilled workers. They are pushed either into unemployment or the underground economy. A bigger minimum also raises prices of fast foods and other goods produced with large inputs of unskilled labor. Workers who receive on the job training must accept lower wages in return...

 
At 6/14/2009 1:16 AM, Blogger bobble said...

i agree that a minimum wage is counter productive. but you are wasting your time getting upset about the recent increase in minimum wage.

according to the BEA
.004 of total workers over 16 y/o are currently being paid the federal minimum wage. how is this increase going to significantly affect unemployment?

 
At 6/14/2009 3:26 AM, Blogger Robert Miller said...

This comment has been removed by the author.

 
At 6/14/2009 2:10 PM, Anonymous Anonymous said...

Also, wages are an input cost which decreases supply (simple ECON 101). When supply decreases, the equilibrium price on goods goes up and there is less quantity! It hurts consumers overall.

The only thing that increases a workers value and is the worker through training, experience, education, etc. Raising the pay of those who aren't going to be worth the new pay level decreases output (GDP), increases unemployment and increases inflation... all things that governments tend to avoid, except when it comes to the minimum wage.

 
At 6/14/2009 2:23 PM, Blogger bobble said...

RM:"I can neither confirm nor deny your statement about the number of people at the current minimum wage"

i believe that exact info is in this link to BEA that i included in my original comment.

by the way, here is a link to one analysis of teen unemployment vs minimum wage. i'd be interested in your reaction.

 
At 6/14/2009 6:03 PM, Anonymous Anonymous said...

"by the way, here is a link to one analysis of teen unemployment vs minimum wage. i'd be interested in your reaction."

I checked it out.

When it didn't increase teenage unemployment, the price floor wasn't binding. Example: mid-late 90s when the economy was in a growth cycle. Example: Mid-late 70s when inflation made the real wages not actually increase.

When it did, you have to remember that it did so for two reasons: businesses got rid of some jobs and more teenagers wanted jobs because of the increase in pay. The supply of workers increases, but the demand for those workers decreases.

A few years ago, people were attracting fast food workers with $7 per hour wages because they had a high demand for more workers and people didn't want to supply their labor. In the current economic climate, I bet that there are people who would love to get a fast food job making $3.50 an hour, but those jobs don't and won't exist.

 
At 6/15/2009 11:41 AM, Blogger bobble said...

anon, thanks for your comments.

i'm not clear what "price floor wasn't binding" means. is that a legal price floor, or related to market conditions?

 
At 6/15/2009 11:41 PM, Blogger Devin Snead said...

bobble:

A nonbinding minimum wage means that the floor is underneath the equilibrium wage, and ergo will have no effect. If the equilibrium wage is $8.00 and the minimum wage is set at $7.25, the minimum wage is non-binding. A floor on wages only "works" when it is set above the equilibrium rate, not below.

 
At 6/16/2009 11:54 PM, Blogger brad said...

devin:"A nonbinding minimum wage means that the floor is underneath the equilibrium wage, and ergo will have no effect."

thanks for that explanation.

actually, this is what i was trying to say in my original post.

the current 'equilibrium wage' is above the new minimum wage. thus, all the clucking about the harm of minimum wage will cause, in this case, is misdirected

 
At 6/19/2009 4:32 AM, Anonymous gas safety london said...

The minimum wage allows a few people to get more at the expense of many people getting nothing. Our least talented employees can only get crumbs by taking from the people who ARE talented and deserving of the money. If a government controls all wages, further distortions occur including a decrease in output, slowed productivity gains and a decrease in overall tax revenues. These things are not what we need in the current economic climate.

 

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