Teenage Employment and Minimum Wage Increases

The unemployment rate has recently reached 9.8% and threatens to break through the double digit threshold. Meanwhile, a few subsets of the population have been especially hard hit during these difficult economic times. Interestingly, certain economic policies have led to a higher unemployment rate for the least skilled population subsets.

Teenagers tend to be low skilled when it comes to labor markets. They just haven't had the time to accumulate much labor market skills. Congress increased the minimum wage to $7.25 per hour in July. Furthermore, Congress has increased the minimum wage by more than 40% since July 2007. Basic economic analysis tells us that increases in the minimum wage lead to a decrease in the quantity of labor demanded by employers and, subsequently, a reduction in employment by low skilled teenage workers.

This is precisely what has occurred to teenage workers. According to a recent Wall Street Journal report, 330,000 teenage jobs have vanished in the past two months and nearly 700,000 teenage jobs have been eliminated since Congress began increasing the minimum wage in July 2007. The September teen unemployment rate hit 25.9%, the highest rate since World War II. Even worse, the unemployment rate of black male teens rose to an incredible 50.4%.

Employment is a productivity and skills issue. Government cannot mandate a productivity and skills increase when it mandates a minimum wage increase. If it could, why stop at $7.25 per hour? Why not have Congress increase the minimum wage to $100 per hour? Magic!