Higher State And Local Minimum Wages May Be Hurting Teen Employment

By Adam Millsap of Mercatus. Excerpts:

"Since 2000, the percentage of teens 16 to 19-years old who are employed has fallen from 46% to around 30%. Despite the magnitude of this decline, there are few studies that try to explain it.

A new study by economists David Neumark and Cortnie Shupe fills this gap by examining three potential causes: a rising minimum wage that could reduce employment opportunities for teens; an increase in the returns to education that could cause teens and their parents to focus on school at the expense of a job; and increasing labor market competition from Spanish-speaking immigrants.

Of the three reasons studied, the authors find that a rising minimum wage has had the largest effect. For example, in 2015 the percentage of teens age 16 or 17 who were in school and employed would have been about 17%, instead of 14%, if the average minimum wage hadn’t increased since 2000. Competition from immigrants had the second largest effect, while changes in the returns to schooling had little effect.

The effects of both the minimum wage and immigration were larger on 16 and 17-year olds than on 18 or 19-year olds. This isn’t surprising, since a higher minimum wage reduces employment opportunities for the lowest-skilled and least-experienced workers the most. Additionally, immigrants are often better substitutes for lower-skilled, younger native workers than higher-skilled, more experienced native workers.

This has ramifications beyond how much spending money teenagers have. The authors also examine whether the decline in employment has affected teenagers’ future earnings. If teenagers who don’t work spend more time studying or accumulating skills in school, then less work could lead to higher wages as an adult. Alternatively, employment could help teens accumulate skills and knowledge they don’t get in the classroom, and this could lead to higher wages in the future.

The authors find little evidence supporting the idea that not working leads to acquiring more skills in school. Instead, they find some evidence that teens exposed to higher minimum wages, and thus fewer employment opportunities, had lower wages as adults.

The lesson? Teenage employment is likely an important way for people to accumulate the skills and work experience that lead to higher future wages. As someone who worked in entry-level jobs throughout high school and college and learned some valuable lessons along the way, this makes sense.

This study’s findings have important implications for state and local officials who control their jurisdiction’s minimum wage. Several states and cities have increased their minimum wage over the last several years, including Colorado, Washington, Seattle, and several cities in California.
While this study uses national data, its findings imply that by increasing their minimum wages, these states and cities are making it more difficult for their teenagers to gain valuable work experience."