Minimum Wage Increase Will Send Teenage Jobless Rate to a Record High

The current (June) unemployment rate for teenagers of 24% (data here, paid subscription required for full access) is within 1/10 of a percent of the all-time high of the 24.1% teenage jobless rate set back in November and December of 1982 (see chart above). The teenage jobless rate of 24% is more than double the national average of 9.5% for June, and for African-American teens the unemployment rate was almost 38%.

When July employment data become available in early August, watch for the teenage unemployment rate to jump to a new record high. Reason?

NEW YORK (CNNMoney.com) -- The federal minimum wage is set to increase later this month as the job market shows signs of further decay. The federal minimum wage will go to $7.25 an hour on July 24 from its current level of $6.55, according to the U.S. Department of Labor. The impact will be felt in 29 states, and many of them plan to match the federal minimum when it goes through.

Seven states already have laws mandating $7.25 minimum pay, while 14 states and Washington, D.C., exceed the new minimum. Employers are required to pay whichever is the highest: Federal or state.

Comments

[Steven Hansen:]

Mark, of course the stupidity of raising minimum wage during a recession is beyond belief.

however, looking at all the statistics you will find that the 55+ group is actually weathering this recession quite well.

my theory is that the minimum wage group like mcdonalds are hiring old people as they are more dependable (less all nighters and relationship problems).

the concern is that this group is not counted in the unemployment stats as they never had a job in the first place.

Jul 08 04:13 AM

[Ferdinand E...:]

Well, Mark, somebody has got to carry the can. I wonder if it's not best for it to be teenagers. Then when they become unemployed they can go back to some sort of school where - HOPEFULLY - the people running the school will teach them something they can use to help get the country moving again. Of course the army and marines are going to need some help. When I was expelled from engineering school (for failing everything twice except history and english) I completed my education in the US infantry.

When Joseph Heller (who wrote 'Catch 22') gave a talk at my university, he said that he left the Air Force an ignorant lieutenant; and later, when we were sipping some wine, I told him that when I finished my first enlistment, I knew everything that I needed to know. And get this, I was only a corporal..

Jul 08 09:13 AM

[TeresaE:]

Unbelievable how Congress chose to ignore the lessons that have already been learned in Michigan.

We entered the "recession" 8 years ago. Three years ago (maybe it was two, having so much fun I've lost track ) Michigan upped it's minimum wage, taxes and allowed the utilities to push "green conversion" onto their customers.

Predictably, unemployment went up nearly 2 points the MONTH following the increased minimum wage.

And, of course, businesses continued shutting down in droves as the reality of higher taxes, more regulations and increased costs for the pleasure of doing business in Michigan became reality.

The feds are determined to follow Michigan into the True Depression.

It has been 7 years of failed policies, bigger government and higher taxes.

You should come visit, the state is BOOMING and things are great [/sarcasm]

Jul 08 09:28 AM

[a. palmer jr.:]

The minimum wage increase was in the works before the recession started. Had they known a recession was imminent they would have had yet another excuse to not pay workers what they are worth. Have you watched people in McDonald's and other "minimum wage" establishments? How does that compare to some of the slugs that work in your office or wherever you work? I know I would rather have some of them working with me than some I have currently, but unfortunately for them, they don't have a degree hanging on their wall. Most of the businesses fighting the minimum wage increase can well afford to pay it, as the example, McDonald's gives millions to charity while their employees live in poverty! If the bosses of these companies like giving to charity, I think they should pay it out of their million dollar salaries not off the backs of their $7 an hour employees.

Jul 08 09:37 AM

[rm:]

Actually, what it will do is push teenagers to seek work where they incur no taxes.

There's plenty of work to be done, and a lot of it can be done off the books, and out of sight of the tax collector.

Perhaps this will lead to a generation of people who see the government for what it truly is.

Here's hoping.

Jul 08 10:17 AM

[Paco6945:]

I have employed my grandson for the past three summers. He will be a senior in high school in September (17 years old). I pay him the minimum wage and he mostly does busy work. I don't really need him, but it's good training for him to be in a business environment.

There is no way I would hire a teenager who wasn't my grandson at the new $7.25 minimum wage. The reality is that very few 16-20 year olds are worth the $8.00- $9.00 per hour that the new minimum wage actually costs a business. Can you think of a business that you would be willing to start where it cost you $70 per day per immature, unskilled teenage employee? You would have to depend upon being able to average generating upwards of $200 per day per employee in gross revenues to justify the costs.

The minimum wage needs to be eliminated entirely. Of course, that's not politically possible, even though it would be one of the best moves for the economy. Failing that, the minimum wage needs to be eliminated or scaled for anyone under 25. Further, payroll taxes need to be eliminated for these employees (I'm not talking about 23 year old college graduates with degrees in engineering).

Think how much better off an 18 year old high school dropout would be, gainfully employed at $5 per hour, than unemployed, hanging out on the street with a bunch of other unemployed kids.

Jul 08 11:01 AM

[CLH:]

The incredible stupidity of the left is almost impossible to believe. The govt. has no right to set either maximum or mimimum wages. Do these halfwits have any idea what a worker is worth? Of course not.

Wages must be set by the worker and the manager--not the govt. retard.

Jul 08 12:55 PM

[John Lounsbury:]

I think Paco6945 has a good idea about scaling the minimum wage based on age. Perhaps there could be an internship provision for someone at any age who is willing to start in need of training. Perhaps the internship could have a 12 month scale-up to minimum wage.

Yes, such a proposal might be abused to keep rotating new interns in and letting maturing interns go. But for many, the cost of low productivity for each new intern learning curve might more than the higher wage cost, which should be accompanied by increasing productivity, of the maturing or ex-intern. If that is not the case, then it is simply a market forces effect: become productive or go home.

Jul 08 01:02 PM

[harryo:]

It's not about the minimum wage, it's about getting work at any salary. Entry level minimum wage jobs that were once plentiful like flipping burgers at McDonalds or summer jobs at the amusement park are now being filled by adults and seniors who use minimum wage positions either as their primary job or their second or third job to pay the house note or make the car payment. The teenage unemployment will continue to go up as long as the adult unemployment rate is at 10 percent because given a choice between an experienced adult and a teenager looking for his first or second job, the adult most likely will get the job; if not for anything else fear the adult would file an age discrimination lawsuit if an inexperienced teenager is hired over an much more qualified adult.

Jul 08 04:18 PM

[milkchaser:]

They raised wages during the Great Depression thinking that if people were paid better they would spend more. Instead, this just decreased productivity as fewer people were left working and more families had to contend with unemployment.

Maybe if Americans get a second look at Hoover/FDR policies (high wage mandates, high taxees, high tariffs) as Obama and the Democratic Congress retry them, they will finally learn that such policies only prolong and deepen a recession. But FDR was loved after the Depression, so maybe Obama figures that keeping people out of work and overtaxed is the best way for him to be eternally loved.

Jul 08 05:50 PM

[Mr. Ed, Jr.:]

Paco6945 has it right-- teenagers (in general) have no experience and have not yet learned about work ethic and discipline. In addition, they (again, this is a generalization, but I think it is fair one) usually do not have the judgement that older workers have.

If employers have to pay $7.25 an hour, they will likely be looking for more experienced employees, and teenagers will be bypassed. I do not agree that employers will offer them "under the table" cash-- that is a risk that a business might take with an illegal immigrant, who is far less likely to later take the employer to court over pay. And an on-the-job injury to a US teenager being paid under the table is not worth the risk to employers.

Teenagers will be at the end of the line this summer, after anybody with experience and illegal immigrants. But it won't matter much, because the minimum wage increase will have the same effect as a tax increase-- it will slow, if not stifle, entry level hiring.

Jul 08 08:08 PM

[hawksruleva:]

Let's see... how do unemployed teens, primarily minorities from urban areas, generally behave?

I think this sums it up... www.time.com/time/worl...

Jul 08 11:03 PM

[The Recusant:]

Now that's amazing! All this clamor over raising the rate for the poorest subset of workers in America. Yet not one word about capping the tens of millions per year earned/stolen by the devils that caused all of this economic mess in the first place. Oh, where is the Spirit of Christmas Past, Present, and Future when you need them?

Jul 08 11:46 PM

[kebu77:]

Many years ago, I enforced the Federal MW and overtime requirements in Fla. for seven years. This was during the time of the great expansion of the law to restaurants, other retail, and small construction outfits.

What I learned was that the MW and its recordkeeping requirements turned a lot of these small firms into real businesses for the first time. A restaurant, for example, would put wait staff on split shifts instead of having them held captive for 11 or 12-hour days, including a lot of downtime. Often the result was not an increase in payroll expense but more time off the employees had to use for private pursuits with no loss to the employer.

A gradually escalating MW set at some automatically-adjusting rate like 45% of the average hourly wage in mfg., would provide a gradual pressure at the bottom for small employers to constantly evaluate how employees are used and seek to improve their productivity (mirco "creative destruction" within the firm). But even the legislated MW, with its fluctuations, has the same result - - it's just periodic, rather than constant - - so, at the point of an increase, businesses have their concentration more intensely focused on employee productivity issues (micro "creative destruction" in fits and starts).

Another benefit of the MW is that it provides the mathematical floor for computing T1/2 for overtime. Once a recovery enters the jobs-producing phase, initially many employers will just have the existing workforce work some overtime, as this is often cheaper than the expense/risk of adding new workers before the recovery (for that business) proves out. This is pro-cyclical and promotes a (sliightly) more level distribution of income.

So long as there are government benefits of one kind or another for not working, a MW requirement provides some added incentive to work. In the perfect libertarian society, neither would exist, but then neither would large corporations in their current form.

Pick and choose your poison, or go back to hunting and gathering...

Jul 09 11:32 AM

[kebu77:]

I meant to add that the fluctuations shown in Mark's charts are profoundly determined by the business cycle - - it's really hard to see any fluctuations caused at the points of MW increases. And given the vast expansions in State MW legislation in recent years, teen UE fluctuations caused by Federal MW increases are even less.

Jul 09 11:37 AM

[peh:]

Interesting article.

Jul 09 03:46 PM

[darrenlobo:]

Mark,

Sadly, you're right. However, your article got a comment disagreeing with it at OpEdNews.com where they accepted a link:

www.opednews.com/popul...

Jul 09 04:02 PM

[Kristen Eas...:]

Decades of economic research has shown that minimum wage hikes destroys entry-level jobs. Research from the University of Georgia in 2006 found that for every 10 percent increase in the minimum wage, teen employment decreased between 4.6 to 9.0 percent in small businesses. This proved to be true last summer when the minimum wage increased by 12 percent and corresponded with a five percent decrease in teen employment.

Prolonged teen unemployment can have long-term negative impacts. Research from Stanford University found that individuals who as teens experienced long periods of unemployment were prone to suffering negative long-term effects on future wages and employment. And research from the University of North Carolina found that teens experiencing unemployment are adversely affected in their earnings for as long as 10 years!

Without that first job, teens are denied the “invisible curriculum” that includes important skills like reporting to a supervisor, meeting deadlines, and working on a team. With a minimum wage increase, employers will be less likely to take a chance on inexperienced teens and instead opt for more experienced applicants, further delaying the opportunity for teens to learn important life lessons. The skills and experience gained from that critical entry-level job set teens up for future success through raises, promotions, and other professional opportunities.

I am sure that you can find plenty of teens this summer who would gladly work for less than the minimum wage. They’d agree that it’s better to have a job than no job at all.

Kristen Lopez Eastlick
Senior Research Analyst
Employment Policies Institute

Jul 09 04:38 PM

[buoy:]

Growing up in the middle of the baby boom, there was intense competition for menial jobs teens could do. Also, the surplus of young workers kept wages low. But, we did them anyway.

Jul 09 05:40 PM

[The Recusant:]

There is a surplus of teen workers now. However, the low wages we got back in the fifties and sixties had more buying potential than the $7.50 that they are now offering as a minimum wage. Our biggest problem is WHO is working the lowest paying jobs. By increasing the wages to a fair level, it encourages more American youths to take the jobs rather than allowing illegal immigrants to do the work who export their salaries to other countries where purchases are made and not in the US. It's worth the extra .50 just to keep the bucks in the US.


On Jul 09 05:40 PM buoy wrote:

> Growing up in the middle of the baby boom, there was intense competition
> for menial jobs teens could do. Also, the surplus of young workers
> kept wages low. But, we did them anyway.

Jul 10 03:06 PM

[tvoelker:]

Interesting...

Jul 13 12:14 PM

[cappig:]

the govt has no right period to set any wage limits or any other rules you g***d socialist


On Jul 08 09:37 AM a. palmer jr. wrote:

> The minimum wage increase was in the works before the recession started.
> Had they known a recession was imminent they would have had yet another
> excuse to not pay workers what they are worth. Have you watched people
> in McDonald's and other "minimum wage" establishments? How does that
> compare to some of the slugs that work in your office or wherever
> you work? I know I would rather have some of them working with me
> than some I have currently, but unfortunately for them, they don't
> have a degree hanging on their wall. Most of the businesses fighting
> the minimum wage increase can well afford to pay it, as the example,
> McDonald's gives millions to charity while their employees live in
> poverty! If the bosses of these companies like giving to charity,
> I think they should pay it out of their million dollar salaries not
> off the backs of their $7 an hour employees.

Jul 24 03:47 PM