People@Work: Do Higher Minimum Wages Really Hinder Teen Employment?
Statistics bear that out. The unemployment rate for 16- to 19-year-olds is now 26.1%, well above the 15% rate recorded in 2007 before the recession began, according to the Bureau of Labor Statistics.
One barrier to teen employment is the nation's $7.25 an hour minimum wage, which is too high, according to a recently released report from the Organization for Economic Cooperation and Development.
"The OECD report recognizes the important link between wages and experience," says research fellow Michael Saltsman of the Employment Policies Institute, a nonpartisan research organization. "A high, mandated minimum wage means less-skilled teens can't get hired without experience. At the same time, it reduces the number of entry-level job opportunities where they can get that experience."
Too Expensive to Train Unskilled Teens
Citing research from Ball State University in Indiana, the OECD attributes the current scarcity of jobs in part to the three most recent minimum-wage hikes that took place between 2007 and 2009. They pushed up the minimum wage by 41% from the previous standard of $5.15 an hour, set in 1997. The recent increases have made it more expensive to hire and train teens who are just getting started in the job market and lack skills and experience. Employers have responded by slashing hours and hiring fewer teens.
Current federal minimum-wage laws do permit employers to pay workers under 20 a subminimum wage of $4.25 an hour during the first 90 days of employment "as long as their work does not displace other workers," according to the Labor Department. But many first-time workers lack basic job skills, Saltsman says, and 90 days isn't enough to bring them up to speed.
But experience isn't the only thing that contributes to greater productivity -- the reason employers hire more workers, says Michael Brandl, professor of economics and finance at the University of Texas at Austin. Technology also make workers more productive. A classic example, Brandl says, is fast-food restaurants where technological advances in recent decades have resulted in orders getting processed much more quickly and efficiently.
"So what's happened is the productivity of everybody in the fast-food (restaurant) has increased. . . but the wages haven't," Brandl says. "After factoring in inflation, the real wages of those unskilled workers remains flat -- they haven't really moved at all -- but yet productivity has increased."
Inflation-Adjusted Wages Don't Looks So High
So if workers are more productive, but their inflation-adjusted wages haven't changed, where does the difference go? Corporate profits and executive pay, Brandl says. "That's why we see so many fast-food restaurants -- they're profitable." It could be argued, he says, that the minimum wage has actually suppressed the cost for labor.
Recognizing that the minimum wage doesn't go as far as it used to, 14 states and the District of Columbia have imposed higher minimum wages than the federal standard. Some cities, too, have their own minimum wages. San Francisco, perennially home to the nation's most expensive housing market, recently raised its minimum wage by 43 cents to $9.79 an hour, among the highest in the nation.
San Francisco ties increases in the basic wage to the percentage change in the consumer price index, which measures the increase (or decrease) in the cost of things such as housing, food and transportation. But the federal minimum wage isn't tied to the CPI.
After accounting for inflation, the current $7.25 federal standard works out to about $5.30 an hour, using constant 1996 dollars, based on BLS data. While that's better than in recent years (in 2006, the then-current $5.15 hourly minimum was equal to $4.14 an hour), minimum-wage earners throughout the 1960s and '70s fared fared better than that group does today. The $1.60-an-hour rate imposed in 1968, for example, is equivalent to $7.21 an hour in 1996 dollars.
Whether the federal minimum wage helps or hinders teen employment seems likely remain an academic argument for years to come. But one thing is certain: Job prospects for younger workers appear only slightly better than last year, which was one of the worst in recent memory. Given the dearth of jobs, many teens today would welcome just about any wage that employers are willing to offer them.