Ignoring the Obvious - Increasing Minimum Wages Create Unemployment in the Unskilled Labor Market

The job market has been getting tighter for all workers, but it's becoming especially hard for those who are trying to get their first paychecks.

The unemployment rate for working-age teens rose to 20.3 percent in July, the U.S. Department of Labor disclosed late last week. That's almost four times the overall 5.7 percent unemployment rate, and a big leap up from the already elevated 15.3 percent rate among teens a year ago.

Economists are reporting "the demise of the summer job" and saying this is the worst season in more than 60 years for those ages 16 to 19 who want or need to work.

Alison Slowes knows firsthand. She started a summer job search when she got home from Brandeis University in mid-May, beginning with boutiques where she thought it would be fun to work, then broadening the search to Target, Michaels and other national chains.

No one wanted a student who could work for only a few months, she said.

"I got several where I was talking to someone and we were thinking of an interview, and I said, 'You know I have to go back to school in August,' and they were like, 'Oh, never mind,'" said Slowes, 20.

While jobs are becoming harder to come by for everyone, they are particularly short in industries that have been mainstays for teen jobs - retail, hospitality and construction.

There's also more competition from older workers, and it's simpler for employers to hire one older person for 30 hours of work a week than two teens who can't commit to more than 15 hours each.

The price of gas also has become a factor.

Nowhere in the article is the 500 pound gorilla mentioned:  the increases in the minimum wage last year and this year is an obvious factor, but it's only mentioned once, and that's on the supply side.

"It's true all over the state, but especially in rural communities, where people tend to drive 10 or 20 miles to the closest retail center or big town," said Lee Egerstrom, economics fellow at MN2020, a St. Paul-based think tank that concentrates on small business and rural development. "If you're going to work a whole day at minimum wage, your take-home pay may not get you more than a tank of gas."

You can't ignore the demand side.  Increasing the minimum wage makes it more costly to hire unskilled workers (in industries such as the retail and hospitality industries, two industries which, noted by the article, have been hard hit).  Even if they wanted to work, they wouldn't be employed if employers weren't willing and able to hire them. 

But for those who feel it necessary for teens to be, effectively, indentured servants, there is good news:

If there's a silver lining, it's that unemployed teens have time for volunteer work, said John Budd, a labor economist at the University of Minnesota and father of a high school senior who is now tutoring at an elementary school.

"It wasn't his first choice, and frankly we hadn't thought about it, either," Budd said. "But he couldn't find a summer job, and this is turning out to be a really good experience for him."

I find it odd that some would consider forcing others into second-best alternatives to be a silver lining.  Moreover, in a slowing economy, increases in the minimum wage only work to further slow the economy and push up unemployment.

Comments

[Cindy]

There are still thousands of high paying jobs posted on Employment sites -

http://www.realmatch.com
http://www.indeed.com
http://www.monster.com

If you want a job, there is a job for you.

[Ironman]

The increases in the minimum wage has a great deal to do with why teenagers aren't working this summer. The sad part is that this isn't the first article to entirely miss it. (Ref: http://tinyurl.com/5kur9v )

Some quick data points:

Going by CPS data from March 2007, representing figures for 2006, when the federal minimum wage was $5.15 per hour or $10,712 annually (assuming full time 2080 hours worked), roughly 50.3% of all people between the ages of 15 and 24 earned the minimum wage or less (the 50.3% comes from adding up all those making $10,000 or less and dividing by the total number of working individuals in the age range - the data isn't broken down more precisely for the $10,712 level).

In 2005, people aged 16-24 accounted for 53.3% of all people earning minimum wage (not just those in the age group!) Those aged 16-19 represent 26.1% of the total, while those aged 20-24 represent 27.2% of the total.

Now, here's the kicker from the July 2008 jobs report. Here we see that teen unemployment (Age 16-19) has risen during the course of this year from 15.8% in March 2008 to 18.7 in May (it dipped slightly to 18.1% in June), and now is up to 20.3% for July 2008, the month the minimum wage hike took effect.

Just looking at the seasonally adjusted figures, between March 2008 and July 2008, 969,000 more individuals in the civilian labor force are counted as unemployed. Between March 2008 and July 2008, 345,000 more individuals between ages 16 and 19 are unemployed, which represents over a third of the change in total unemployment (35.6%).

Why would the small businesses that predominantly hire teenagers at the minimum wage stop hiring or employing the least expensive members of their labor force? One would presume that with costs rising, business owners would seek to sustain the lowest cost labor they could.

Unless the lowest cost labor was becoming substantially more expensive. In today's economic environment, the lowest cost labor would appear to be too expensive to employ....

[MattY]

The minimum wage is a signal for and partial cause of inflation. But to say that because we take minimum wage increases at particular points in the cycle does not make it the cause, maybe just a correlated factor.