Wednesday, November 18, 2009

The Minimum Wage and Teenage Jobs

Copyright, The New York Times Company

Teenage employment has fallen sharply since July. The most recent minimum wage hike may be an important factor.

Many economists expect the minimum wage, if it has any effect, to (among other things) raise employer costs and therefore reduce employment, especially among those who are likely to work in minimum-wage jobs, like teenagers and restaurant workers.

In July 2007, the federal minimum hourly wage was increased for the first time in 10 years, from $5.15 to $5.85. It was increased again a year later to $6.55, and increased yet again this July to $7.25.

Because the minimum-wage law still permits employers to pay more than the minimum, economists agree that a low minimum wage has smaller effects than a high minimum wage. The inflation-adjusted federal minimum wage had gotten to its lowest in decades by early 2007, so the July 2007 increase should have had the smallest effects of the three.

The July 2009 increase should have the largest effect, because the combination of the two previous hikes and some deflation ($6.55 bought more in June 2009 than it did the previous summer) had already gotten the inflation-adjusted minimum wage relatively high.

The chart below shows a seasonally adjusted index of the percentage of 16- to 19-year-olds with jobs. That group is especially likely to be affected by minimum-wage legislation. Of course, this is a recession period in which employment has been falling for essentially all groups, so for reference the teenage percentage has been converted to an index by dividing by the percentage for all people, with July 2009 set as the benchmark (i.e., the teenage employment rate that month has been set to 100).

The chart shows teenage employment index values greater than 100 early in the recession, which means that employment rates fell in greater percentages for teenagers even before the July 2009 increase, as it did in prior recessions (even recessions without minimum-wage increases). With the index falling somewhat less than 1 percent a month before July 2009, we would expect the index to be somewhat below 100 after July 2009 even if the minimum wage hike had no effect.

But the teenage employment after July 2009 seems sharply lower. By October 2009, the index had fallen to 92.1 — a drop of about 8 percent in just three months — whereas the prior 8 percent drop had taken more than a year. This suggests that the 2009 minimum-wage increase did significantly reduce teenage employment.

Before this recession, economists hotly debated the employment effects of the minimum wage, with special attention to a 1992 minimum-wage increase in New Jersey (this book got it started, and this book is a good source for the opposing view).

More work is needed to determine whether the 2009 experience is fundamentally different from the earlier episodes that have been studied, but next week I will describe a new study that “weighs in” on those episodes.


Milton Recht said...

There is also some research showing that a rise in minimum wage increases high school dropout rates, but I believe the issue is still unsettled and debated.

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Anonymous said...

Is there any update for this news in early 2010? As we all know that during the summer there are many employers hiring teenagers (especially the amusement park, resort, etc). I need some facts and figures about jobs for 16 year olds. Anyone knows where can I find data about the minimum wages for employment in 2010? Thanks a bunch.

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Unknown said...

There are many teenage jobs available. I have helped thousands of students and teens with jobs since the start of Good Luck!

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