Minimum Wage Not to Blame for Teen Unemployment

In his latest attack [1] on the minimum wage,Casey Mulligan charges in his NYT Economix post that the 2007-2009 minimum wage increases are adding to teen unemployment. He writes that “Many teenagers cannot find work this summer, [2] victims of a weak economy and a situation made worse by minimum-wage laws.”

Mulligan is correct to note that teens have been hit hard by the recession—as the youngest, least experienced members of the workforce, they are among the last to be rehired in economic recoveries. Due to the dramatic disappearance of jobs during the Great Recession, many older workers are taking jobs previously filled by teens: half of college graduates are now filling jobs that don’t require a college degree.

Over the last half century we have seen that teen unemployment rises and falls in proportion to the overall unemployment rate. Since the end of World War II, the teen unemployment rate has ranged from 2.5 to 3.5 the overall employment rate. With overall unemployment at a painful 9.1 percent, May’s teen unemployment rate of 24.2 falls within that historic range.

However, Mulligan’s claim that the minimum wage is exacerbating the teen unemployment problem is simply not true. A recent recent study [3] [pdf] by economists at the University of California examined every state and federal minimum wage increase over the past two decades and found that they did not lead to declines in teen employment. Their analysis included an in-depth examination of minimum wage increases during times of high unemployment—including the Great Recession of 2007-2009— and found that even in these difficult economic periods, increases in the minimum wage did not cause job loss or slow rehiring.

Moreover, the new study demonstrates how a body of previous research – one frequently relied on by business lobbyists who oppose minimum wage increases – inaccurately attributes declines in employment to increases in the minimum wage. It finds that these studies failed to sufficiently account for critical economic factors such as regional economic shocks and long-run job growth differences in low-wage employment across states. When the authors control for these important factors, the claimed negative employment effects disappear.

While the minimum wage has not contributed to job loss among teens, there are other economic trends affecting teen employment which Mulligan ignores. In fact, he fails to note that teen employment has undergone a dramatic decline since 2000—perhaps because it doesn’t fit his claim that the 2007-2009 minimum wage increases are to blame for high teen employment.

Part of this trend in decreasing employment among teens is a result of a positive shift in education—more teens are spending more time fulfilling stricter graduation requirements, taking more advanced courses, and spending time in summer school. Thus, with teens gaining more skills and education, they are investing in becoming more productive contributors to the nation’s economy in the futue.

But in addition to this encouraging development, teens are also confronting a more competitive labor market. In a 2005 paper [4] [pdf], Northwestern economist Andrew Sum details how the 2003-2004 recovery, in a sharp contrast to all other post-war recoveries, saw teen employment continuing to fall, while workers 55 and over dramatically increased their employment. Writing about the 2000-2004 period Sum concludes: “No other age subgroup in the U.S. has been as adversely affected by changing national labor market conditions over the past four years as teens. In fact, all older age groups of workers (those 55 and older) have become employed at higher rates over the past four years while the teen employment rate hit a new historical low. A substantial “age twist” in the structure of employment rates has taken place over the past four years in the nation.” Keep in mind that this dramatic decline in teen employment was occurring at a time when minimum wage had been losing value for 7 years.

Sum describes structural changes contributing to this age-twist—including fewer jobs in manufacturing, little net job growth in retail, and rising competition from older adults as a result of a jobless recovery. In 2001, the first of the baby boomers were turning 55, creating a growing cohort of older workers. Moreover, these workers are increasingly taking “bridge” jobs after their career jobs and before retirement as a result of changes in Social Security, reductions in pensions and retirement savings, and the need to get a job after losing or leaving a previous job.

A 2010 paper [5] from the Bureau of Labor Statistics shows how this increased competition from older workers continued throughout the decade in the occupations where teens are predominantly employed. Most teens work in food preparation and serving occupations, followed by sales and related occupations. From 2000-2009, employment in food preparation and serving increased by 1.1 million. Every age group recorded gains in employment in food preparation and serving occupations, while the number of teens declined by 242,000. Employment in sales and related occupations was little changed from 2000-2009, though teen employment fell by more than half a million, and workers over 55 increased their employment in sales occupations by 822,000.

In addition to the Great Recession, increased competition resulting from a weak job market and a growing number of older workers has been hitting the entire workforce, dealing the sharpest blow to teens. While roughly 10 million jobs were created from 2000 to early 2008 before job losses wracked the economy, teen employment declined by more than 1.5 million. [6]

The crisis in teen employment isn’t a wages problem as Mulligan contends, it’s a jobs problem. There aren’t enough to go around.