TEEN UNEMPLOYMENT AND THE MINIMUM WAGE

Recently the Wall Street Journal editorial page and numerous conservative/libertarian bloggers have shown charts comparing the last few years spike in the teen age ( 16-19 year olds) unemployment rate with the rise in the minimum wage in an attempt to blame rising teen unemployment in 2008 and 2009 to the minimum wage hike. But more detailed data from the BLS shows that teen employment at the minimum wage rose 46.1% in 2008 and 50.1% in 2009. This detailed data implies that the rise in the teen unemployment rate from around 15% in 2007 to over 25% in late 2009 was entirely due to the great recession, not the rising minimum wage. This data is so compelling that I think at a minimum these conservative/libertarian at least owe us an explanation as to why it does not disprove their argument.

On 9 February–Minimum wage disinformation –I published a chart that showed since 1960 there have been 18 increases in the minimum wage. Nine of those increases were accompanied by a falling teen unemployment rate and nine were accompanied by a rising teen unemployment rate. The difference was that the nine times teen unemployment rose were also associated with a recession while the other nine occurred in an economic expansion. This chart and regression analysis clearly implied that the bulk of the increases in teen unemployment since 1960 was due to recessions, not rising minimum wage.

Now the BLS has published more detailed data on teen employment at and above the minimum wage in recent years. This data contains several surprises that tend to strongly contradict the standard theory of teen employment and the minimum wage taught in most economic textbooks.

First it shows that during the years 2002 to 2007 when the nominal minimum wage was unchanged, teen employment at the minimum wage was less than 10% of teen employment. Over 90% of teens were paid more than the minimum wage.

Second, over this period of a flat nominal minimum wage the real minimum wage was falling and each drop in the real minimum wage was associated with a drop in the number of teens employed at the minimum wage. Teens clearly though that school work, public service — so important in college applications — sports or leisure activity like video games was a more valuable use of their time than working at a minimum wage job. Consequently, firms had to offer a higher wage than the minimum wage to induce teens to work for them. This is why the share of teens paid more than the minimum wage rose from 2002 to 2007. This should not be any great surprise to an economist. It is standard economics 101 that if you want more of something you offer a higher price. I have never really understood why most economics instructors spend much of an economics course teaching that if you want more of something — raise prices. Than they turn around and teach that you will get more teen minimum wage employment if you offer a lower price. YEAH RIGHT — and they wonder why the students have trouble getting it.


Third, the data shows that from 2007 to 2009 while the minimum wage rose from $5.15 to $7.25 — a 50% increase — teen employment at the minimum wage rose from 373,000 to 818,000 — a 119 % increase. Moreover, teen employment at more than the minimum wage fell from 5,061,000 to 3,579,000, almost a 30% drop. The drop in teen employment at more than the minimum wage accounted for 130% of the 1,037,000 fall in teen employment from 2007 to 2009. Again, this should not be a big surprise to economist. A large increase in the real minimum wage generated a large increase in teen employment at the minimum wage. It is standard economics 101. This data also implies that essentially all of the drop in teen employment from 2007 to 2009 was due to the Great Recession, not higher minimum wages. I suspect that if we had this detailed data for other periods of a rising minimum wage it would show a similar pattern.

In my blogging about the minimum wage I have never taken the position that raising the minimum wage does not lead to weaker employment. All I have done is point out that the available data completely contradicts the theory that the minimum wage causes weaker employment. Moreover, the more data that becomes avilable, the more it condraticts standard textbook theory.

I have noticed bloggers such as Mark Perry at Carpe Diem, Don Boudreaux at Cafe Hayek, Alex Tabarrok at Marginal Revolution, Megan McArdle at the Atlantic, Ironman at Political Calculations, or Greg Mankiw have advanced the thesis that the recent rise in teen unemployment is due to higher minimum wage, but they need to explain why a doubling of teen minimum wage employment does not contradict their analysis.

This data can be found at
Characteristics of minimum wage workers

Because the BLS reports each years data in a single file, if you want to look at data for multiple years it is easier to go to the top left of the BLS home page and search for “characteristics of minimum wage”.
The search will show a Google search of each of the different years files and moving back and forth from Google to BLS is the best way to switch from the file for one year to another. Also, since the data for 2009 has just been reported it has not had time to collect many hits, so it will be on page 2 or 3 or the Google search.

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