The federal government recently enacted two increases to the federal minimum wage. The first, an increase from $5.85 per hour to $6.25 per hour took effect in 2008. The second, an increase from the $6.25 rate to $7.25 per hour took effect in 2009. The purpose of these increases in the federal minimum wage was to raise standards of living among the least skilled workers, to allow them to earn a wage sufficient to meet their basic living needs.
The minimum wage was originally passed as a means of cracking down on the proliferation of sweat shops in the manufacturing sector of industry. These sweat shops put huge numbers of women and children to work, but paid them very little. Lawmakers felt that the big employers had an unfair bargaining advantage over their employees, and the minimum wage was proposed as a way to make the employers offer a fair wage. Over time the reasoning behind the minimum wage has evolved, and today the minimum wage is percieved as a way to help families become more economically self-sufficient.
This public policy goal is laudable, but in fact, the majority of minimum wage workers are not low skilled or low educated adults. A sizable number of minimum wage employees are high school students supplementing their income or gaining experience in the work world by working part-time or full-time menial jobs. Therefore, the benefits of a minimum wage hike may not be benefiting the population lawmakers intended it to benefit.
According to the AFL-CIO, about 10 million workers in the United States make minimum wage. Of these 10 million minimum wage workers, 52 percent of them are between 16 and 24 years old, making them the largest group that benefits from any increase in the federal minimum wage, according to the Heritage Foundation, a conservative think-tank. Data from the Department of Labor shows that most of these young minimum wage earners come from families with an annual income of at least $50,000 per year, putting them well above the federal poverty line. Because the large number of minimum wage earners aren’t in poverty situations, increases in the federal minimum wage do not, by and large, present an efficient means of bettering the lot of poor families.
Teenage unemployment
Although it would appear that increases in the federal minimum wage benefit teenage workers the most, some economic studies and data actually suggest the opposite. According to some economists, increases in the federal minimum wage have been met with a corresponding increase in teenage unemployment.
This theory follows the standard economic model which suggests that increases in labor costs will be met with reductions in the labor force or a curtailment in additional employment by employers in order to offset these increased labor costs. The reasoning is that minimum wage jobs are highly fungible, and if the costs of maintaining them becomes inordinately high, employers will reduce headcount and spread some of the minimum wage workers’ duties among higher paid workers with other responsibilities, rather than raise prices to offset the increased labor costs.
From the late 1960s to the mid 90s, economists of nearly all stripes agreed that increases in the minimum wage resulted in higher rates of unemployment, particularly among low-skilled and teenage workers. A 1983 study stated that for every 10 percent the minimum wage was increase, teenage unemployment also increased by between one and three percent. Other studies done at the time tended to support this assertion, but differed concerning the corresponding rates of wage increases and employment decreases.
In the mid-90s the consensus among economists shifted, and studies that suggested that other factors, such as the overall health of the economy could have an aggravating or mitigating impact on how a minimum wage increase impacts teen unemployment. Today, economists generally agree that a minimum wage hike can be a drag on teenage employment, especially in a struggling economy, but differ on how great the drag is and whether it’s mitigated by the increase in the earning power of teens and low income people.
In the current recessionary economic environment, the increase in the minimum wage appears ill-concieved as the teenage unemployment rate currently stands at about 24 percent.
Decreases in teenage employment can be bad for society, as many teens are using minimum wage jobs to supplement scholarships to attend college, reducing their dependence on student loans. As the average college student comes out of school $27,000 in debt, cutting into their disposable income, reducing student dependence on college loans should be a public policy priority.
