Wage hikes and teen employment

Moderated by Rick Badie

The current federal minimum wage is $7.25 per hour, roughly $15,000 for a full-time year-round worker. Today’s guest writers offer opposing views on whether raising the minimum wage to an hourly rate of $10.10 an hour — as proposed by President Barack Obama — would help or hinder the rebounding economy.

Wage hikes kill teen jobs

By Michael Saltsman

Georgia parents, prepare yourselves: With a 30.6 percent teen unemployment rate heading into the summer, your jobless kids might be making withdrawals from the Bank of Mom & Dad for their cash.

There are a number of factors at work: More competition from older job seekers, for instance, has put young and inexperienced applicants at a disadvantage. But also at fault are a series of ill-conceived minimum wage mandates at the state and federal level, which raised the cost to hire and train teens who fill those jobs.

Those teens can only hope that President Barack Obama and Congress won’t make it worse with another proposed wage increase.

Nationally, teen unemployment has been above 20 percent every summer since 2009. That’s four straight summers — soon to be five — of record teen unemployment. They’ve all occurred during or since the 40 percent hike in the federal minimum wage between 2007 and 2009.

Writing in 2010, economists at Miami and Trinity universities estimated that, even accounting for the effects of the recession, at least 114,000 young adults lost job opportunities as a result of the federal wage hike. (Other economists have put that figure above 300,000.)

Percentage-wise, this came out to a 6.9 percent drop in teen employment in the states affected by all three stages of the federal wage hike. For teens with less than 12 years of schooling, the relative drop in employment was even higher, 12.4 percent.

One need only look at the businesses that employ teens to understand why. Nearly 40 percent of the nation’s employed teens work in the leisure and hospitality industry — restaurants, movie theaters, hotels and the like — while another 25 percent work in retail jobs at grocery stores, service stations and such.

These types of businesses aren’t exactly rolling in dough. Their profit margins are generally 2 or 3 cents on every sales dollar. Sudden spikes in labor costs leave these businesses with two options: Raise prices or reduce costs.

When raising prices isn’t an option, the only other is to provide the same product with less service. This might mean having waiters or waitresses bus their own tables or opting for a self-service alternative to young grocery baggers.

The data bear this trend out: Teens’ share of employment in the leisure and hospitality industry dropped by more than 20 percent between 2007 and 2011. In retail, it’s fallen by nearly 30 percent over that period.

This makes it all the more baffling that wage-hike advocates in Congress would raise the minimum wage by another 40 percent, to $10.10.

This may be good politics, but it’s certainly not good policy. Teens, whether in Georgia or anywhere else, start climbing the employment ladder through their first summer jobs. Further minimum-wage hikes only postpone their ability to get these jobs, which research shows hurts future earnings, employability and professional development.

That might not seem pressing to the teens who will just lie on the beach or lounge on the couch for the next three months. But it is much more concerning for their parents, who want nothing more than a good future for their kids and, maybe, some peace and quiet between now and September.

Michael Saltsman is research director at the Employment Policies Institute.

Wage hike offers relief

By Michael Reich

More than four years have passed since the official end of the Great Recession. Throughout the recovery, the costs of food, utilities and gasoline have continued to increase, but the minimum wage has not kept up with the rising cost of living. The minimum wage in Georgia and much of the U.S. has been stuck since 2009 at the federal rate of $7.25 per hour, which translates to just $15,000 per year for a full-time worker, nearly $4,000 below the poverty line for a family of four.

Lawmakers in Congress have proposed raising the federal minimum wage to $10.10 per hour by 2015 — giving a raise to roughly 944,000 low-paid workers in Georgia — and indexing it thereafter to inflation. Some will continue to insist that companies that pay low wages cannot afford to give their workers a raise, and that the minimum wage destroys jobs for workers who need them the most.

What do real-world data say?

In a recent study, I compared employment levels in all pairs of cross-state border counties that had differing minimum wage rates at any point over the last 20 years, more than 250 pairs. This study found that higher minimum wages did not reduce employment or encourage business to relocate to areas with lower minimum wages.

Indeed, two-thirds of all low-wage workers are employed by large companies with more than 100 employees, not small mom-and-pop shops. The largest employers of low-wage workers, such as Wal-Mart and McDonald’s, are earning strong profits today and can afford higher wages.

Let’s not overlook the savings that result from higher wages. When pay is higher, workers do not need to balance multiple jobs to make ends meet. They are more likely to stay with their current employers. Employers can benefit from reduced employee turnover and higher worker productivity. Major companies such as Costco are able to offer low-priced products while paying their workers high wages precisely because of these kinds of savings.

Some businesses prefer to boost profits by paying very low wages and pushing their workers on to public assistance to pay their bills. However, the best economic research shows that businesses can afford to pay a higher minimum wage.

The federal minimum wage has lagged behind the cost of living for the past several decades. If it had kept pace with inflation since the late 1960s, it would be more than $10.55 today. Ten U.S. states already tie their minimum wages to changes in the state’s cost of living. States that index do not experience job losses compared to states that do not.

A higher minimum wage will offer some relief to the nation’s lowest-paid workers and help protect the promise of upward economic mobility for hard-working Americans.

Michael Reich is an economics professor at the University of California, Berkeley, where he directs the Institute for Research  on Labor and Employment.

24 comments Add your comment

middle of the road

June 6th, 2013
6:44 am

By the way, in a previous job, our benefits were approximately 45% additional to the simple wages. That would mean that the minimum wage of $7.25 was really $10.51 with benefits included.

middle of the road

June 6th, 2013
6:42 am

“The federal minimum wage has lagged behind the cost of living for the past several decades. If it had kept pace with inflation since the late 1960s, it would be more than $10.55 today”

There is more to the story than just simple wages. What about benefits? The costs of benefits (especially medical insurance) has hit businesses hard. Workers complain about having to pay more for insurance, but rarely understand that businesses are paying a LOT more. Combine the minimum wage with benefits in the sixties and compare it to today’s figures. IF a company offers insurance (and most will have to under Obamacare), the amount paid on behalf of the employee is probably a lot more than the sixties.

meno

June 5th, 2013
5:18 pm

Mr. Liberty and middle of the road seem to not be aware of the kind salaries that are paid to people in the so-called third world (who, by the way, do great work). Do you both really think if we just leave things to market forces, livable wages will naturally be accessible to everyone who has the willingness and ability to do desired work? What do either of you think accounts for the higher standard of living people in our country enjoy–that we would never settle for anything like the people in, Asia, and Central America are forced do? If enough of us are not assured a basic level of existence it can certainly happen here. I don’t think it is so wrong to set a floor that we say anyone willing
to work should not fall below. In your zeal against being a slave to the government, neither of you seem to have any problem allowing us to be slaves to employers.

dc

June 5th, 2013
4:06 pm

Am a relatively conservative leaning person, but I actually don’t think increasing the minimum wage, especially for businesses above a certain size, is a bad idea. Make work attractive to enough people, and hopefully at least some would develop the skills and attitude to work. Some wouldn’t, of course. But I’d like to think enough would to make it worthwhile to society.