Why Jobless Teens May Have More to Blame Than the Recession

Minimum wage raises may hurt the youngest workers.

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As summer rolls around, lawmakers in Washington are preparing to vote on a jobs bill that would include $1 billion for summer jobs for teens. Much of the urgency for the program stems from the private-sector plunge in summer jobs for teenagers over the past few years. It's no secret that the recession walloped teens' jobs as much as it did their parents. But some economists find the clamor for public jobs programs a little ironic, given last year's mid-recession minimum wage increase, which may have reduced teen employment even beyond the recessionary drop.

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Before the minimum wage jumped to $7.25 an hour last summer, University of California-Irvine economist David Neumark estimated that it would lead to an additional 300,000 job losses for teens and young adults. The 2009 wage increase was set in motion in a better labor market in May 2007, when Congress voted to boost the minimum from $5.15 an hour to $7.25 an hour over the course of the next two years.

It's hard to parse the jobs lost because of the recession and those lost because of the minimum wage increase—there's no direct evaluation of the impact of the wage increase yet—but it's likely that raising the wage floor contributed to the record-high teen unemployment rates, Neumark says. "Almost everyone accepts that minimum wages decrease employment or likely increase unemployment of the least-skilled," he says. Neumark advocated for delaying last year's increase.

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The unemployment rate for teenagers was 25.4 percent in April, compared with 9.9 percent overall, according to the Bureau of Labor Statistics. Teens generally have higher unemployment rates. In November 2007, the month before the start of the recession, the unemployment rate for the overall population was 4.7 percent, versus 16.2 percent for workers ages 16 to 19. Teen employment has been declining for some time. The percentage of teens with jobs has fallen from about 57 percent in 1989 to about 40 percent in 2007 (both dates reflect healthy economies). The reasons are diverse. For one thing, increased school enrollment appears to account for about a third of that decline, according to the Economic Policy Institute. "For teens, there has been a remarkable long-term shift from summer employment to summer enrollment," reports EPI economist Heidi Shierholz.

One of the critical issues for job-seeking teens is the changing face of the competition, which is increasingly skilled. "Not only are they competing with each other for available positions, but they are competing with recent college graduates and job seekers who have two or more years of on-the-job experience and are willing to take almost any position that provides a steady paycheck," says John Challenger of outplacement firm Challenger, Gray & Christmas.

Employers can pay workers younger than 20 a lower "youth minimum wage" for the first 90 calendar days of employment, but that training period may not be long enough to make it useful to employers who can hire higher-skilled candidates. While the short-term impact is obvious—fewer teens earn the pocket cash a summer or part-time job would provide—the long-term impact may be more insidious. "Paid work during high school is generally associated with a greater chance of finding a job after graduation, longer spells of employment, and higher income," according to a 2001 report by the Federal Reserve Bank of Boston.

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Many in Washington viewed the most recent wage lift as well timed. Labor Secretary Hilda Solis said the extra money would serve to stimulate the economy, putting more cash into the hands of workers who would put it towards groceries or utilities. The minimum wage today, adjusted for inflation, is still lower than it was in the 1950s, 1960s, and 1970s, says Ross Eisenbrey, vice president of the Economic Policy Institute in Washington. "Yet somehow we managed to employ almost everybody back then," Eisenbrey says. "There's really no relationship between minimum wage at $7.25 and an employer's ability to employ people. It's really more a function of, What are the profit expectations of the owners of business? How do they value labor? ... It's a willingness-to-pay issue."