Teen Unemployment: What Drives It


The minimum wage debate is an old favorite. Another very visible and clear line of disagreement between conservatives and liberals. There are those on one side that feel we should increase the minimum wage to a level that better represents a living wage. Other, myself included, feel that wages are best left to the negotiations of the employer and the employee.

There are all kinds of debates raging about that people aren’t able to afford to raise a family on the minimum wage. Heck, it can be legitimately argued that you can’t raise YOURSELF on minimum wage. Be that as it may, I don’t wanna get into that. What I wanna look at is what the impact of the minimum wage, specifically changing it, has on the folks earning it.

Let’s look.

Minimum wage is that dollar amount that employers pay to their most unskilled labor. These roles in the company can often be filled by interchangeable employees. That’s to say that if Bobby decides to leave, Bobby can be replaced with Sally virtually immediately. Training and on-boarding costs are very low by definition. If those costs were higher, the employer would be incented to pay Bobby more in order to avoid ’em. It is true then, that the employee pullin’ minimum wage is the least skilled labor in the market. We can see what happens when labor becomes skilled even in a country of billions:

“We have responded to the labour shortage problem by constantly recruiting workers and raising wages by 20-30% compared to last year but even then it is not enough to ensure the supply of labour,” the source said in Mandarin.

So, who is it that represents this most basic unskilled worker in America? New entrants into the job market. And which demographic is that? Teen workers, literally, the new employee.

So how does raising the minimum wage impact this group of people. Well, at the most basic, labor is a commodity exactly like copper, cotton or steel. As the price for a commodity increases, firms buy less of it. They seek more productive uses for it or look for cheaper alternatives. Labor is no different. So, we could look at the unemployment rate for teens and track it along the changing minimum wage levels. But, if we did that, we might be looking at the wrong data. After all, unemployment, teen or otherwise, is impacted by many MANY things going on, not just minimum wage.

So, in order to better pinpoint teen unemployment changes, I look at “Excess Teen Unemployment”. That is, I take the unemployment rate for all workers and compare it to the unemployment rate for our teens. Subtracting the 2 gives you the excess teen unemployment. When we track this excess unemployment against minimum wage changes, we get this:

With the exception of the times in the mid 90’s when we had a combination of a fantastic economy and stable minimum wage, we see that for every step UP in the minimum wage there is a corresponding step UP in the excess teen unemployment. It’s a pattern that’s clear in 1990 and again as minimum wage laws ratcheted up the rate in 2007, 2008 and 2009.

As clear as clear can be we see Econ 101. As the cost of something increases, purchasers of that something will reduce their purchases of that thing. In this case, teen workers. And it manifests itself in the increase of teen unemployment. Which right now is hovering at about 15%.

So, if teens are the class of workers being employed at the minimum wage, is there a group of people even MORE dependent on this wage? There is. And, ironically, it’s the very group of people who I suspect folks wanna help when they fight for minimum wage increases. And the tragedy is the absolute devastating impact those laws have on those very people it’s meant to protect. The black teen:

The exact same pattern emerges with one crucial difference, the unemployment rate is nearly 3 times higher than the typical teen.

I have no doubt that my Liberal friends have only the most noble of intentions when they plan and institute laws like the minimum wage. I’m sure, absolutely SURE, they mean to help folks and not harm them. But the results of their legislation are as clear as they are horrible. The results of higher minimum wages means that employers hire fewer folks on the margin. These kids then are left with nothing to do and lose years, in many cases decades, of valuable on the job skill refinement. The result to themselves is a lost lifetime of wages relegating them to poverty for much of, if not all of, their lives.

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9 comments
  1. Pino,

    This is one of those things that are black and white and firmly grounded in logic and data that many liberals will still deny.

    The economics of comparative advantage is another area many of them deny as well.

    Can’t wait to see if anyone tries to disagree with you on this one. I certainly don’t.

  2. I think you will find conservatives of some strips that don’t like trade, or appear to understand comparative advantage as well.

  3. pino said:

    The economics of comparative advantage is another area many of them deny as well.

    The thing is, I get that they wanna help “the little guy”. It’s just that they aren’t.

    I think you will find conservatives of some strips that don’t like trade,

    I agree.

  4. Henry said:

    In preparation for a race, runners position themselves along the starting line and wait to begin. After the starting pistol is fired, the runners move quickly AWAY from the starting line. No athlete would choose to just camp out at the starting line after the race had begun. The starting line is a starting point; the minimum wage is also a starting point. Nobody should ever plan to stay at that pay level. During my life, I have had several minimum wage jobs, but in every case, I received a raise by the end of the first week. No matter how low the minimum wage was, it was never a hardship because I never stayed at that pay rate long.
    Why are people spending years at minimum wage jobs? In my opinion it is their own lack of motivation and common sense. Perhaps we can blame our society for their lack of common sense, but the motivation component is all in the hands of the worker.

    • pino said:

      the minimum wage is also a starting point. Nobody should ever plan to stay at that pay level. During my life, I have had several minimum wage jobs, but in every case, I received a raise by the end of the first week.

      Well said Henry.

      First of all, virtually no one makes the minimum wage. And secondly, if they DO, they are almost certain to get a raise within the first 6 months.

  5. Bobby said:

    You should use the real minimum wage rather than the nominal minimum wage. You describe labor as an input into production that may be substituted with or for capital and describe the minimum wage as the cost of teen employment. Given this description, the only way to look at the minimum wage is relative to the prices of other inputs.

    Also, isn’t this entire post a simple ripoff of Mark Perry’s article (http://online.wsj.com/article/SB10001424052748704761004575096150953378366.html?mod=rss_opinion_main) and blog posting (http://mjperry.blogspot.com/2010/03/update-on-wsj-editorial-on-minimum-wage.html). You don’t mention his analysis at all, but seem to take credit for this process.

    • pino said:

      You should use the real minimum wage rather than the nominal minimum wage.

      Except that people pay the nominal rate. Not the real.

      My point is that as the rate increases, the amount of labor purchased is reduced. I don’t attempt to point out if the minimum wage earner is better or worse off.

      Given this description, the only way to look at the minimum wage is relative to the prices of other inputs.

      In large areas of industry, this may be true; think assembly line becoming more automated. However, in others, it doesn’t; think sweeping the pizzeria floor.

      Also, isn’t this entire post a simple ripoff of Mark Perry’s article

      I read Carpe Diem all the time. Much of what I think is influenced by Dr. Perry. I delivered a post here:

      https://tarheelred.wordpress.com/2010/06/22/minimum-wage/

      That post mentioned his work and I cited him twice.

      Then I delivered another post here:

      https://tarheelred.wordpress.com/2010/07/14/impact-of-minimum-wage-black-teens/

      I cited Dr. Perry again.

      I have been interested in the minimum wage for a long time and even used beer to illustrate my point here:

      https://tarheelred.wordpress.com/2010/02/16/how-to-sell-more-beer/

      I mentioned in one of those points that I had been thinking through how to demonstrate the impact of the minimum wage on those earning it. I wanted to track the unemployment rates against the minimum wage hikes. However, I understood that it wouldn’t be a perfect picture; the unemployed don’t all make minimum wage and other factors impact the unemployment numbers besides hikes in minimum wage.

      I thought of taking the difference in the unemployment rates of teens.

      However, I was slack and lazy and Carpe Diem posted it before i did. Further, he pointed me to the data source; BLS.org. I never would have considered to take into account a further marginalized population, black teens, however. That was completely his influence on me.

      If it appears that I took his research and lifted it, I can see the point. However, I feel I honestly arrived at a “concept” of the analysis and Dr. Perry simply gave it “form” in my mind.

  6. Bobby said:

    Nope, the real wage is the true cost of labor. If all prices and wages doubled then nothing would change. The labor demanded (and labor supplied) is a function of the real not nominal wages.

    Because the nominal wage is not changing over parts of your graph but the price level is changing, there are many changes in the real minimum wage that you are not capturing in the graph. I don’t know what the change will do to the graph. I imagine that the fact that two of the three minimum wage hikes were concurrent with recessions that the trend for those two changes will still be there. This is enough to swamp any effect.

    You should also pull data from further back. I’m pretty sure that it’s just as easy to access from the BLS as the years that you show. If your hypothesis is correct, the correlation should remain over any time period.

    • pino said:

      Nope, the real wage is the true cost of labor. If all prices and wages doubled then nothing would change. The labor demanded (and labor supplied) is a function of the real not nominal wages.

      Which is why I think you see the excess unemployment reduce as time wears on. The real wage decreases which makes that labor cheaper. However, when the nominal wage changes from what it was literally yesterday to what it literally is today, that changes the scenario.

      I imagine that the fact that two of the three minimum wage hikes were concurrent with recessions that the trend for those two changes will still be there.

      It was for that reason that I began to think of a way to describe the impact on unemployment other than simply tracking raw unemployment rates.

      I’m unsure that a recession would explain away all of the teen excess unemployment. It would seem that during a recession the work would still have to be done and employers would be anxious to hire the cheap labor. Not the other way around.

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