Higher Minimum Wages, But Not for the Young
This fall, several states, including Washington and Maine, will vote on ballot initiatives to raise their local minimum wages. Despite evidence showing that higher minimum wages have the perverse effect of lowering employment among low-skilled workers, most of these initiatives will likely succeed. After all, most Americans are kind, and few want to vote against giving their fellow workers a raise.
The biggest victims will be the young. While some economic studies find mixed effects on the employment of adults, most agree that higher minimum wages reduce the job opportunities available to young people. One recent analysis by economists Jonathan Meer and Jeremy West of Texas A&M University found that a higher minimum wage lowers youth employment 11 times as much as it lowers the employment of middle-aged adults.
The reason is that young jobseekers usually don’t have the long résumés, acquired skills, and glowing references that enable them to land well-paying work. Instead, they must accumulate these assets through entry-level jobs, which usually means working — temporarily — for a low wage. If the minimum wage is set above what employers are willing to pay for unskilled, inexperienced labor, many young people will find themselves out of work.
As the minimum wage has risen, this is precisely what has happened. Teenage labor force participation, which was 52 percent in 1996, has fallen to just 35 percent today. For political reasons, it’s unlikely that minimum wages will be lowered — or even frozen. Instead, the best way forward is to allow young people to work for a special youth minimum wage below the standard rate.
The United States already has such a program. Since 1997, employers have been allowed to pay workers under 20 a wage of $4.25 per hour for their first 90 days on the job. The trouble is that more restrictive state laws supersede the relaxed federal standard. Unless states include a similar provision in their labor codes, the federal youth minimum wage is useless. Perhaps unsurprisingly, many states have not played along.
35 states plus the District of Columbia either have no youth minimum wage exemption or have a more limited one than what the federal government allows. In an era of slow wage growth, many of these states have opted to raise their minimum wages, and it’s likely many more will. In order to mitigate the worst effects of these government-imposed wage floors, states should follow the federal government’s lead and allow young people to work for a lower wage.
Congress should also consider expanding the youth minimum wage program, since its usage has been quite limited. More specifically, the 90-day limit on employment should be repealed. Employers may be reluctant to take advantage of the youth minimum wage if they must give all workers a 71 percent pay bump after just three months on the job.
In a new report for the Manhattan Institute, I estimate the employment effects of expanding the youth minimum wage. If all states adopt a youth minimum wage rate of $4.25 per hour and Congress abolishes the 90-day time limit, the economy could generate a maximum of 450,000 new jobs for young people — increasing their employment by nearly 9 percent. Like all estimates, this is contingent on various assumptions. But in all likelihood the job-creation numbers would at least be in the hundreds of thousands.
The campaigners behind state-level minimum wage increases should consider devoting some of their energies to the inclusion of youth minimum wage provisions in this fall’s ballot initiatives. The youth minimum wage won’t solve the youth employment crisis on its own. But we can start turning the tide of policy towards the interests of young people, who desperately need a lifeline in this slow economic recovery.
Preston Cooper is a policy analyst at the Manhattan Institute and the author of the forthcoming report, Reforming the U.S. Youth Minimum Wage.