The erosion of teenage employment and a youth minimum wage

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Since 2007, Ohio’s minimum wage has climbed from $6.85 per hour to the current rate of $8.30. Earlier this year, state Democratic leaders introduced a bill that would further accelerate minimum wage increases to $15.00 per hour by 2025. Though unlikely to pass this year, the legislation is part of a national debate about what constitutes a “living wage” for employees who may be trying to make ends meet for their families. My intention is not to jump into the rancorous discourse around wage floors for grown-ups. But it is worth examining how escalating minimum wages might affect work opportunities for teenagers. In my view, if we want to promote more teenage employment, Ohio policymakers should consider setting a youth minimum wage that differs from that of adults.

Figure 1 shows some national data on teenage employment trends. There’s been a dramatic decline in the employment of sixteen- to nineteen-year-olds over the past forty years. In 1980, almost 60 percent of young people in this age range held part- or full-time jobs; that number has since fallen to just 35 percent. This drop in teenage employment diverges from the general working-age population trend, which has remained steady over this period. Of course, many teenagers work only in the summer, but an analysis from the Bureau of Labor Statistics shows that July employment among sixteen- to nineteen-year-olds has dropped from 71 percent in 1980 to just 43 percent in 2016 (these data are not shown in figure 1).

Figure 1: U.S. civilian labor force participation rates for 25–54 year olds vs. 16–19 year olds, 1980–2018

Source: Federal Reserve Bank of St. Louis. The data are annual averages of monthly employment rates, seasonally adjusted.

Any number of factors could explain the erosion of teenage employment. An article last summer in The Atlantic by Derek Thompson explored possible explanations, including the notion that young people today prefer educational pursuits over workforce experience. There is surely some credence to this story: High-school dropout rates have steadily fallen and college enrollments have risen, resulting in fewer teens in full-time jobs. Enrolled students may now be less inclined to seek part-time jobs as they face greater academic demands; and it’s also plausible that summer school and earlier starts to school years have dampened seasonal employment.

As Thompson explains, several labor-market forces may also be driving down teenage employment rates, including increased competition for entry-level jobs from adult or immigrant workers, along with the rise of unpaid internships, which aren’t counted as employment.

He also mentions—almost in passing—another important hypothesis that might account for the drop: An increasing minimum wage. A closer inspection of the minimum wage is warranted because, unlike some of the other factors, it is under the direct control of policymakers. In theory, rising wage floors could work in opposite directions in terms of influencing teenage employment. A higher wage might induce adolescents into the workforce, thus increasing employment rates. But it could also make employers more reluctant to hire young people who likely have less experience and weaker job skills, and who may require more training and supervision.

A recent Mercatus Center paper by labor economists David Neumark and Cortnie Shupe looks at how a rising minimum wage has affected youth employment. They first show that minimum wages across the U.S. have indeed risen in real dollars since 1988—and that trend correlates with deteriorating teenage employment shown in Figure 1. This could all be coincidence, of course, so they conduct analyses that control for factors such as immigration and returns to education. They conclude that rising minimums wages contributed to lower employment rates. Specifically, they estimate that a 10 percent increase in the minimum wage led to a 4 percent decline in employment among sixteen- and seventeen-year-olds. The study, however, didn’t find that rising minimums affected eighteen- and nineteen-year-olds, indicating that the effects of the wage hikes were limited to high-school-age teens. (For more evidence, see this accessible brief.)

Given the sensitivity to changes in the minimum wage, policymakers could promote greater youth employment by setting a floor slightly lower than that of adults—a suggestion that several policy analysts have already made. A “youth minimum wage” would create a modest incentive for employers to offer young people jobs. Moreover, with more opportunities at hand, students might be more motivated to seek employment, especially of the part-time or seasonal variety. Ohio already permits employers to hire fourteen- and –fifteen-year-olds at the lower federal minimum wage of $7.25 per hour. State policymakers could simply extend a differential minimum wage to cover sixteen through eighteen year olds, akin to what states like Minnesota and Washington (and other nations) have done.

Critics may raise concerns that such a policy shortchanges teens who are employed at the lower rates. But it’s far more costly to rob countless thousands of young people of all workforce opportunity just because employers can’t afford to pay them the statutory minimum rate, which is set largely based on adult concerns. And which teens are most likely to lose out on these opportunities? Odds are they’ll be young people from less advantaged backgrounds who already face significant barriers to work, such as fewer employer connections and more competition from low-skilled adults. Of course, these youngsters are the very ones who stand to benefit mightily from such workforce experiences. 

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Many of us can remember working as teenagers at the local pool, restaurant, or retail shop. For me, it was a job at the supermarket down the street. That experience taught me lots, like the value of hard work and responsibility, how to get along with co-workers, and coping with criticism from a grumpy boss—things that one might call “street smarts” to go along with “book smarts.” For those who believe in the benefits of these on-the-job experiences, the slide in teenage employment should be disheartening. A youth minimum wage isn’t a magic bullet, and we should do more to unlock jobs. But in a time of rising minimum pay and shouts for even larger increases, setting a special wage floor for young people could create more opportunities for those seeking an introduction to the workforce. 

 
 
Aaron Churchill
Aaron Churchill is the Ohio Research Director of the Thomas B. Fordham Institute.