Thursday, October 22, 2009

The Great "Teen-Cession" Thanks to the Min. Wage

It’s been well-documented here and elsewhere that the recent recession has been especially hard on men, to the point that it’s frequently been referred to as a “man-cession.”

But there’s another group that’s been hit equally hard by the recession, but without as much attention – teenagers. Although the national jobless rate of 9.8% in September is still a full percentage point below the record 10.8% set in 1982, the teenage jobless rate soared to a record-setting 25.5% in August, and then raised again in September to yet another post-war high of 25.9%. The current teenage jobless rate is now almost two full percentage points above the previous record of 24.1% in December 1982 (see chart above), and will probably continue to climb even higher in the coming months.

Who or what can teenagers blame for the worst job market in history for their age group, the "Teen-Cession of 2008-2009"?

They can certainly blame the recession, one of the worst since the early 1980s. But they also might want to blame Congress for raising the federal minimum wage from $5.15 per hour in 2006 to $7.25 per hour by July 2009, a 41% increase over the last three years and the largest inflation-adjusted minimum wage increase over a 3-year period in more than fifty years.

Unfortunately, Congress priced teenagers right out of the labor market by hiking the minimum wage more than $2 per hour at the same time the pool of unemployed, skilled workers was increasing from the recession. The 41% increase in the minimum wage along with increased competition from more skilled workers for the jobs teenagers typically fill, worked together to send teenage unemployment soaring to record levels.

The chart above of the teenage jobless rate and minimum wage over the last four recessions helps to illustrate how the 2008-2009 recession by itself would have been bad enough for teenage employment, but coupled together with the 41% minimum wage increase it created the worst teenage job market in history.

Teenage unemployment rates have always risen during recessions, and there were several minimum wage increases that happened around the time of recessions, which likely pushed the teenage jobless rate up even higher. There was an 8.1% increase in the minimum wage close to the 1981-1982 recession, and a 27% increase in the minimum wage around the time of the 1990-1991 recession, but those increases were nothing compared to the 41% increase in the minimum wage that took place in three steps starting in 2007 just preceding the recession, followed by increases in 2008 and 2009 in the midst of the recession. The chart clearly illustrates the fact that the minimum wage increased by 41% at the same time that the teenage jobless rate spiked to record-highs, and it’s likely that the positive relationship is no coincidence.

Raising the minimum wage in the United States by 41% during the last three years has denied job opportunities and training to those who need those experiences the most – unskilled teenage workers. If the goal was to destroy job opportunities for hundreds of thousands of teenage workers and drive teenage unemployment into record territory, raising the minimum wage by more than $2 per hour over the last three years certainly accomplished that goal. But if maximizing job opportunities for teenagers during both economic recessions and expansions is the goal, the correct minimum wage should be $0.00 per hour.


At 10/22/2009 1:56 PM, Anonymous T Scott said...

Say nothing about the substitution effect of capital for labor. Higher min wage would seem to accelerate this effect.

At 10/22/2009 2:31 PM, Blogger ExtremeHobo said...


At 10/22/2009 3:45 PM, Anonymous Anonymous said...

Of course, the minimum wage has ALWAYS been $0.00: what Congress and Bush did was massively increase the minimum productivity rate, destroying the future of those who aren't currently able to create value at the mandated rate. They just keep removing the lower rungs of the ladder and then wonder why fewer people can climb it.

So now more teenagers than ever are making the true minimum wage.

At 10/22/2009 3:53 PM, Blogger Ironman said...

Note also the sharp increase in teen unemployment beginning in 2007, when the economy grew in each quarter of the year, which begins with and correlates to various milestones associated with the legislative process mandating the higher minimum wage (see third chart here).

T Scott: Speaking of the substitution effect, there's another aspect: employers substituting the work of more productive higher wage employees already on the payroll for the unlucky teens priced out of the employers' ability to hire them and stay profitable.

There's an even darker side to that situation, as the more highly skilled employees see their productivity lowered, as they must take on the jobs previously done by the unskilled teens who had been employed at the previous wage levels. Just because the teens aren't there anymore, it's not like the total amount of work went away.

But then, guess who's now at the highest risk of being let go from their jobs....

At 10/22/2009 5:47 PM, Anonymous Ian Random said...

Great point Less. I've been toying with the idea of proposing that minimum wage increases should be contingent with productivity increases, but it really all comes down to productivity. If you can't produce enough to justify your job, you have no job. I wish my coworkers could comprehend that.

At 10/23/2009 11:38 AM, Anonymous Anonymous said...

This is a mix up of cause versus result. The reason congress raises the minimum rate aroun d recessions is to make a show of being for the little guy in trouble. Note that in the late ninties the relationship would be inverse to your premis. In the current recession it couldd very well be that the sudden increase of unemployed latinos due to the increased federal scruitiney has driven up the teenage rate. Far too few data points available here to draw any conclusions.


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