Higher State And Local Minimum Wages May Be Hurting Teen Employment

This piece first appeared on Forbes.com.

The recent February jobs report revealed another strong month of job growth, as the economy added 313,000 jobs nationwide. Additionally, the job gains in February marked the 89th consecutive month employment has grown, which is a new record.

But despite this positive news, there are still some troublesome long-term trends. Since 2000 there has been a decline in the percentage of people age-25-to-54 who are employed, and the decline has been particularly severe among men. Over this same period, there has also been a substantial decline in the percentage of teenagers who are employed, and new research links this latter decline to a rising minimum wage.

Since 2000, the percentage of teens 16 to 19-years old who are employed has fallen from 46% to around 30%. Despite the magnitude of this decline, there are few studies that try to explain it.

A new study by economists David Neumark and Cortnie Shupe fills this gap by examining three potential causes: a rising minimum wage that could reduce employment opportunities for teens; an increase in the returns to education that could cause teens and their parents to focus on school at the expense of a job; and increasing labor market competition from Spanish-speaking immigrants.

Of the three reasons studied, the authors find that a rising minimum wage has had the largest effect. For example, in 2015 the percentage of teens age 16 or 17 who were in school and employed would have been about 17%, instead of 14%, if the average minimum wage hadn’t increased since 2000. Competition from immigrants had the second largest effect, while changes in the returns to schooling had little effect.

The effects of both the minimum wage and immigration were larger on 16 and 17-year olds than on 18 or 19-year olds. This isn’t surprising, since a higher minimum wage reduces employment opportunities for the lowest-skilled and least-experienced workers the most. Additionally, immigrants are often better substitutes for lower-skilled, younger native workers than higher-skilled, more experienced native workers.

This has ramifications beyond how much spending money teenagers have. The authors also examine whether the decline in employment has affected teenagers’ future earnings. If teenagers who don’t work spend more time studying or accumulating skills in school, then less work could lead to higher wages as an adult. Alternatively, employment could help teens accumulate skills and knowledge they don’t get in the classroom, and this could lead to higher wages in the future.

The authors find little evidence supporting the idea that not working leads to acquiring more skills in school. Instead, they find some evidence that teens exposed to higher minimum wages, and thus fewer employment opportunities, had lower wages as adults.

The lesson? Teenage employment is likely an important way for people to accumulate the skills and work experience that lead to higher future wages. As someone who worked in entry-level jobs throughout high school and college and learned some valuable lessons along the way, this makes sense.

This study’s findings have important implications for state and local officials who control their jurisdiction’s minimum wage. Several states and cities have increased their minimum wage over the last several years, including Colorado, Washington, Seattle, and several cities in California.

While this study uses national data, its findings imply that by increasing their minimum wages, these states and cities are making it more difficult for their teenagers to gain valuable work experience.

Seattle, for example, started increasing its minimum wage in steps in 2015 and it will reach $15 citywide in 2021. A study by a group of University of Washington professors found that the increase to $13 per hour reduced hours worked by more than wages increased, causing total pay to fall.

Regarding teenage employment, the percentage of teens age 16 to 19 employed in Seattle is similar to other nearby cities, though it lags nearby Redmond, Wash. The figure below displays the percentage of teens age 16 to 19 who were employed from 2013 to 2016 in five different cities within the Seattle metropolitan area.

data from American FactFinder, ACS 5-year estimates table S2301
Teen employment rates

Though on par with some other nearby cities in 2016, Seattle’s teen employment rate is lower than the 30% national average. A mediocre teen employment rate alone doesn’t prove that Seattle’s higher minimum wage is reducing employment opportunities for its teens, but in light of Neumark and Shupe’s study and the differences in employment rates across these proximate cities, it’s something Seattle’s officials and voters should be mindful of.

There are also substantial differences in teenage employment across cities nationwide. The figure below shows employment rates for 16 to 19 year olds in eight different U.S. cities from 2013 to 2016.

Teen employment rates

As mentioned earlier, the national average is about 30%, down from 46% in 2000. In this group, only Columbus and Denver have teenage employment rates in line with the national average. In Baltimore, Orlando, and Atlanta, only about one in five 16 to 19-year olds were employed in 2016.

It’s understandable that voters and officials are concerned about low-income workers and their families, but minimum wage increases have costs as well as benefits. One of these costs appears to be lower teenage employment, and most of these cities already have below-average teenage employment rates. This fact, combined with the findings of Neumark and Shupe, gives state and city officials in these and other areas a reason to think twice about raising their minimum wages any further.

MillsapAdam-1081-HRAdam A. Millsap is the Assistant Director of the L. Charles Hilton Jr. Center at Florida State University and a Senior Affiliated Scholar at the Mercatus Center at George Mason University.



The featured image is from The Lance.com.

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