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Let’s increase teen unemployment

Suzi Budge

Suzi Budge

Raising Idaho’s minimum-wage rate, as Senate Bill 1334 calls for, would have an immediate effect: It would start killing off jobs for teens and those second and third wage-earners helping to support their families. That is if you choose to believe the overwhelming body of economic research.

There is no issue more armor-plated against opposition than the minimum wage. Courageous are the few statesmen who correctly see it for what it mainly is: An entry-level wage, the first rung in a young person’s climb up the economic ladder of life.

Make the minimum wage too costly, and you do nothing but increase teen unemployment and reduce the number of opportunities for other members of a family to help support the primary bread-winner.

The first word on the minimum wage goes to the U.S. Bureau of Labor Statistics, which comes up with numbers that all economists researching the issue must by necessity start with. It says, “Minimum wage workers tend to be young. Although workers under age 25 represented only about one-fifth of hourly paid workers, they made up about half of those paid the federal minimum wage or less.”

Forbes contributor Jeffrey Dorfman crunches the Bureau’s numbers. “… there are about 3.6 million workers at or below the minimum wage … That is 2.5 percent of all workers and 1.5 percent of the population of potential workers. Within that small group, 31 percent are teenagers and 55 percent are 25 years old or younger. That leaves only about 1.1 percent of all workers over 25 and 0.8 percent of all Americans over 25 earning the minimum wage.

“Within that tiny group, most of these workers are not poor and are not trying to support a family on only their earnings. In fact, according to a recent study [by economists Joseph Sabia and Richard Burkhauser] 63 percent of workers who earn less than $9.50 per hour (well over the minimum wage of $7.25) are the second or third earner in their family and 43 percent of these workers live in households that earn over $50,000 per year. Thus, minimum wage earners are not a uniformly poor and struggling group; many are teenagers from middle class families and many more are sharing the burden of providing for their families, not carrying the load all by themselves.”

Economist David Neumark from the University of California Irvine and William Wascher, a researcher for the board of governors of the Federal Reserve Bank, pored over two decades worth of minimum-wage studies here and abroad. In a 2006 paper submitted to the National Bureau of Economic Research, they found “… the oft-stated assertion that recent research fails to support the traditional view that the minimum wage reduces the employment of low-wage workers is clearly incorrect … we see very few — if any — studies that provide convincing evidence of positive employment effects of minimum wages … the studies that focus on the least-skilled groups provide relatively overwhelming evidence of stronger disemployment effects for these groups.”

For seven years afterwards, the Neumark/Wascher paper became the thing to debate among economists, during which time even more studies appeared. Last year, Neumark and Wascher came back with an analysis of those, “We conclude that the evidence still shows that minimum wages pose a tradeoff of higher wages for some against job losses for others, and that policymakers need to bear this tradeoff in mind when making decisions about increasing the minimum wage.”

Michael Saltsman of the Employment Policies Institute puts the problem with raising the minimum wage in dollars and cents. “You don’t need to have a doctorate in economics to understand why teens would feel the pinch from a wage mandate. The businesses at which they are most likely to work — picture a restaurant or grocery store — face thin profit margins of roughly 2 or 3 cents from every sales dollar.

Mandated increases in labor costs can’t just be absorbed with margins like these. Businesses instead have to offset the cost through raising prices (thus reducing sales), or — more likely — by providing the same product with less service. That means more customer self-service, and fewer opportunities for the people who used to fill those jobs. Losing these jobs means losing the bottom rung on the career ladder.”

It might not be great political and media comfort to those legislators voting against SB 1334, but they can take some solace in knowing they helped keep the first rung up life’s economic ladder in place for the younger generation.

Suzanne Budge is Idaho state director for the National Federation of Independent Business.

About Suzanne Budge

One comment

  1. Anybody with even the most basic knowledge of economics knows that the minimum wage is bad policy. There is a market for labor. Any artificial price fixing (i.e. the minimum wage law) above the naturally established market rate will result in the quantity of labor demanded to decrease (i.e. unemployment). This is clearly just another political ploy to gain votes. You cannot legislate prosperity. If we could raise everybody’s standard of living simply by mandating an increase in wages, why not make the minimum wage $1,000 per hour and everybody would be rich, right? Clearly, that wouldn’t work because there would be a 99%+ drop in jobs. An yet politicians continue to try to sell the idea as if bad policy in smaller doses somehow makes sense.

    One other point. If I were unemployed and very willing to do some work at a rate below the minimum wage, why should the government interfere in my ability to earn a living or the ability of two freely acting individuals to agree to a contract?