Rising Minimum Wage Raises Teen Unemployment

Here are three graphs from two posts by Mark Perry (Source). He produced these in response to a Wall Street Journal article, The Lost Wages of Youth.

 

"Excess" Teenage Unemployment vs. Minimum Wage (Source)

My take is that the minimum wage benefits those who already have a minimum wage job and have some skills. But it is frequently devastating for low-skilled workers and those looking for their first job. Hiring a new low-skilled employee is a risk for a business. The more expensive it becomes to take a chance on a new low-skilled worker, the less likely the business is to the risk. They will find other ways to get the job done ... automate where they can or replace a few low-skilled part-time workers with a full-time, experienced worker. Some will simply decide the risks aren't worth it and move into a less labor-intensive business.

Teens are the most vulnerable to this dynamic, and minority teens are the most vulnerable of all because they often have less geographic access to jobs. The minimum wage effectively pulls the bottom rung of the economic ladder up a little higher and more out of reach for the poorest and least skilled ... the very people the minimum wage is most intended to help.

Comments

[Naum]

1. Correlation does not prove causation.

2. More importantly, unemployment is rising across the board, which cuts against the WSJ's hypothesis that the minimum wage is having a particularly devastating effect on teens. Look at the a similar graph here. In fact, the seemingly dramatic increases in the unemployment rate among teens and black teens noted by the Journal (while disturbing) are actually smaller relative to the initial rates in those groups than among adults generally. See http://www.brendan-nyhan.com/blog/2010/03/simplistic-wsj-minimum-wage-editorial.html for details

3. Minimum wage increases do not cause part-time job loss - http://www.epi.org/page/-/ib274/ib274.pdf

Caveat: consider carefully when plucking "information" from extremist partisan press owned by foreign billionaire (Murdoch) and rich Saudi oil sheiks!

[Michael W. Kruse]

Thanks for the links.

1. Agreed.

2. Please read the comments to Nyhan's post and see "David March 16 5:15 pm." Nyhan's analysis is inaccurate and the WSJ article understates the effect.

There is no question that the downturn in the economy is a significant factor here. That alone would increase teen unemployment. But the issue is that the teen unemployment rises faster and in a particular pattern. Note the stair-step jumps in teen unemployment above all unemployment in the third graph. Unemployment jumps at each of the last two intervals.

3. Living standards are not the same across the country. Some locations around the nation (say Boston or San Francisco) were already paying more than the first increase in minimum wage. The hike had no impact.

However, in other places (like say Topeka or Little Rock) the minimum wage increase begins to push the wage above what the market is demanding for low skilled labor. Businesses in these locations begin to make choices. Those choices in limited locations aren't going to have a significant impact on the national numbers. But with each successive increase more cities and regions are pushed beyond the market threshold and an national impact begins to emerge.

Apparently the increase to $5.85 did not push many businesses above the market price. The last two increases to $6.55 and $7.25 apparently did as evidenced by the stair-step jumps.

It isn't just that businesses eliminate existing full or part-time positions at minimum wage. Some may. The issue is also what jobs they choose not to create in the future because of the increased cost. The stuff I've read suggests that the latter may be the bigger impact.

I'm not just basing my views on this article. I've been reading about this stuff off and on for twenty years. The precise impact of the minimum wage is notoriously hard to measure. I use these graphs as illustrations of what I think is likely happening, not as ironclad data.

The National Bureau of Economic Research published an article three years that begins:

"We study the effects of minimum wages and the EITC in the post-welfare reform era. For the minimum wage, the evidence points to disemployment effects that are concentrated among young minority men. For young women, there is little evidence that minimum wages reduce employment, with the exception of high school dropouts. ..."

This is consistent with what I've read elsewhere. If the aim is to improve the plight of the poorest among us, then the EITC appears to have some positive effective while the minimum wage tends to help some but not the most vulnerable. Nearly 80% of Phd. economists from across the political spectrum agree, "A minimum wage increases unemployment among young and unskilled workers." Source.

You believe the WSJ to be the "extremist partisan" press? Fine. But then you link an article from the deeply partisan, and heavily labor backed, Economic Policy Institute. It has been the home of leftists like Kuttner and Thurow ... the later of whom I've heard speak in person and who is noted for his praising of the Soviet centralized economy as a model for U.S. management even as the Soviet economy collapsed.

Also keep in mind that many union contracts set base wages for various pay grades as a multiple of the minimum wage. The minimum wage increases are an effective way to circumvent management and labor negotiations and create government mandated salary increases for people who are far from poverty. If you want to go to be motives and bias as you have done, what might be the motives of the labor backed EPI championing minimum wage?

Finally, I'll add that I'm much less interested than you are in ascribing motives to people. I'm much more interested in ongoing conversation and discussion about ideas and facts. Whether here or at Jesus Creed, I don't think I've come across any comment you've made that wasn't one of these disparaging confruntational name-calling statements.

Lighten up, my friend. Develop relationships and conversations. Life is to short go through it this hostile.

[Naum]

Namecalling?

By accurately depicting WSJ (especially the op-ed space, though the news space, once emblematic of journalistic principles, now has disintegrated into the same style of baseless agitprop) — WSJ interests are indeed in the light of foreign billionaires and rich oil sheik that are the publishers. While it does not automatically discount the message, it certainly should be taken into account. Especially, since these are the same voices representing powers that have transformed U.S. from global leading creditor to leading debtor, leading exporter of finished goods to leading importer of finished goods.

You consistently bring forth simplistic economic models, as if human beings were homo-economicus, with no purveyance for anything less than rational. And proudly espouse notions that any balanced economics student is disabused of after introductory courses.

EPI is biased, though in a different sense. First, let's not conflate objectivity with neutrality — the two concepts are not interchangeable. Furthermore, let's look at the interests of WSJ overlords Murdoch and Saudi oil sheik — to further aristocracy and entrenchment of oligarchy power vs. EPI which is in the interest of working people (not saying they're infallible or without fault by default).

Your posts here reflect a very narrow band of WSJ/neoliberalism that's not representative of economics field in general. In past posts, I've supplied links and other perspectives — (i.e., Samuel Bowles Microeconomics, Gregory Clark, etc.…).

For perspectives on inequality (which minimum wage addresses in some part) see Robert Frank's excellent work.

If I truly wanted to be "disparaging" I would emphasize that pleading for elimination of "minimum wage" is the equivalent of a pro-slavery argument — that advocating for paying of less than a living wage is enslavement, especially in an arc of increased productivity that's seen the top 1-10% of the economic pyramid profit immensely while working Americans (the bottom 85-90%) wages stagnate.

[Michael W. Kruse]

"You consistently bring forth simplistic economic models, as if human beings were homo-economicus, with no purveyance for anything less than rational."

August 10 last year I wrote a post Hubris Economicus in which I wrote:

"Part and parcel of the neoclassical school became the concept of “homo economicus,” the economic man, a thoroughly rational utility calculating machine (who critics would say had incredible knowledge about markets that no actual human-being could ever have.) Economic analysis was done with “homo economicus” as the presumed actor. Yet careful analysis and cross-cultural studies indicating that people in different cultures value things in different ways, cast considerable doubt on this formulation and method. Multiple attempts have been made to rescue and resurrect our friend but I’m not sure any have truly succeeded.

This exemplifies one of the frequently leveled criticisms against many economic models. They are often constructed in a way that ignores major difficulties and includes only those elements that support a desired outcome. Thus, the joke about asking an economist, “A man falls into a deep hole and is unable to climb out. What should he do?” The economist’s response? “Well, first we assume a ladder …” The models work with great precision but the question is to what degree the models approximate reality.

This is not to say that economic analysis is by any means useless. That is a gross overreaction. It is of immense value. But postmodern critiques remind us that no one stands in a value-free objective place outside reality and does research. Beliefs about what constitutes things like rationality, utility, and justice are inescapable in economics. There are no objective observers."

You wrote "And proudly espouse notions that any balanced economics student is disabused of after introductory courses."

The two issues you and I have spent considerable verbiage debating are protectionism and the minimum wage. As I've pointed out, surveys of Phd economists from across the political spectrum believe:

"Tariffs and import quotas usually reduce general economic welfare." (93%)

"A minimum wage increases unemployment among young and unskilled workers." (79%)

That doesn't make them right. That doesn't mean you aren't free to make the case for an alternative view. But my opinions on these issues are in tune with mainstream economists.

Furthermore, I've repeatedly talked about the fact that trade alone will not lift emerging nations out of poverty. Without the right structures and values in place it can positively destructive. Economic structures or interdependent on other aspects of society and simply imposing "free markets" is foolish.

I've lifted up the importance of strategic aid to emerging nations and the critical importance of investing in the development of human capital.

I've praised the presence of democracy that allows the presence of entities like the EPA and pressure groups to exert influence because despite whatever excessive regulation or economic drag I believe they may have on the economy at times, their presence is a needed democratic counter-balance to the economic forces at work in the world.

I can go on with other examples of things I've written over the past five years here. I'm sure many of my perspectives are similar to neoclassical thought on issues but my views are far more nuanced than you give me credit.

Bottom line is this, If I'm a prideful simpleton, then why keep coming here and wasting your time? I'm not going to understand you anyway.

If your intention is to persuade me, do you think dogmatic, caustic, and dismissive remarks sprinkled all through you comments are going to help persuade me?

If you think I'm an ignorant writer and your intentions are not to persuade, then aren't your intentions in commenting here just to have a pissing match?

I'm happy to converse in a civil manner about our differing views. Scot McKnight invites his readers at his blog to imagine they are seated around a table at a coffee shop with their favorite brew (which is a challenge for me since I don't like coffee) having an engaging conversation. I like the metaphor. But I really have no time for pissing matches. There are thousands of blogs out there that would welcome you into such a contest and your comments would be seen by many more readers. If that is what you desire, then my I invite you to look in that direction.

[Dreadhawk]

If we were sitting around a coffee table I would have interrupted you about halfway through that last long ass comment, and asked if I could respond to your first or second or third point. So long as we're talking about others' commenting tendencies, the length of yours seems to stifle conversation, while promoting mutually oblivious monologues.

[Naum]

Again, with the Mankiw survey.

No source is given, and even if was a reflection of a pool of some economists, believe I already addressed the errors in it — without belaboring, #2 (93% agree tariffs and import quotas reduce general economic welfare) is a whopper — our nation's history absolutely rebukes this as the period when tariffs and quotas were at their highest, was when the largest economic advances were made. Also, see Korea and China for similar model output. Now, the statement can be defended in a weaseled fashion, that of course, 100% (or some obscene mark) indeed would be terribly stifling.

[Michael W. Kruse]

Several times in the past I've written about C. S. Lewis' essay on "Bulverism." Lewis identifies Bulverism as the defining feature of modern debate. He writes:

"In other words [historically in debate], you must show that a man is wrong before you start explaining why he is wrong. The modern method is to assume without discussion that he is wrong and then distract attention from this (the only real issue) by busily explaining how he became so silly. In the course of the last fifteen years I have found this vice so common that I have had to invent a name for it. I call it Bulverism. Someday I am going to write the biography of its imaginary inventor, Ezekiel Bulver, whose destiny was determined at the age of five when he heard his mother say to his father – who had been maintaining that two sides of a triangle were together greater than the third – ‘Oh you say that because you are a man.’ ‘At that moment’, E. Bulver assures us, ‘there flashed across my opening mind the great truth that refutation is no necessary part of argument. Assume that your opponent is wrong, and then explain his error, and the world will be at your feet. Attempt to prove that he is wrong or right, and the national dynamism our age will thrust you to the wall.’ That is how Bulver became one of the makers of the Twentieth Century." (C. S. Lewis, “Bulverism,” in C. S. Lewis, God in the Dock: Essays on Theology and Ethics, Wm. B. Eerdmans Publishing Company, 1970, 271-277. p. 273.)

So in the opening comment by Naum, he/she makes three opening comments, all worthy of discussion. But his/her summation demonstrates these points are assertions on the way to making the main point: The WSJ is stupid/evil and by extension anyone who would post WSJ information at their blog is stupid/evil. The thrust of the conversation is shifted from the substance of the argument to how I the author became so stupid, evil, or both ... it is Bulverism. In past discussions I've tried to deal the substantive issues and ignore the Bulverism. That simply provokes more Bulveristic responses.

So yes, Bulverism tends to make me a bit testy and long-winded. My patience has expired with people who come here hiding behind anonymity and hiding from relational accountability to create a caustic toxic environment.

[Michael W. Kruse]

Naum, I believe Mankiw's source is this article from the American Economic Review. It is getting a bit dated yet it is still being published in the leading economics textbooks in the country. I'd need to see some evidence to the contrary that these views have changed.

Again, the statement was "Tariffs and import quotas usually reduce general economic welfare." As I wrote in earlier discussions, I think there needs to be a distinction between advanced industrial and post-industrial economies versus emerging economies ... between what happened in the past and what works in the present globalized context.

Yes, the history of post-industrial nations as they industrialized involved significant degrees of protectionism. But is protectionism for countries with advanced economies beneficial today? I think that is what economists are saying. When it comes to pre-industrial emerging economies I think we have a murky picture.

As Britain, U. S. and other countries industrialized they certainly used protectionist measures. Could they have done better without them? Pre-industrial economies today have much in common with advanced nations a century or two ago. Yet when today's advanced nations were emerging there were no advanced nations to trade with. Emerging nations today have that option. What does all that mean?

And again my point wasn't that economist can't be wrong. You characterized my observations as outlandish and I'm merely pointing out that they are not. They are consistent with mainstream economics.

[Peggy]

Hmm...looks like one of our friends from the One T is in need of some deputy back up. ;^) Thanks for everything you do to further the cause for clear thinking, bro.

Especially because today is International Women's Day, and you are an excellent brother to the sisters.

[victorclaar.blogspot.com]

Yikes!

Your patience is greater than mine, Mike. You're a good man.

[Michael W. Kruse]

Thanks deputy. Amazing how much work it takes to keep the cyber streets safe for civil conversation.

[Daniel Mclaughlin]

Hi Michael,

I just stumbled upon your site, and I'm glad I did. I am enjoying your insights and the comments. Thanks.

[Michael W. Kruse]

Thanks Daniel.

[Nathaniel Dame]

Wow interesting stuff. I commented earlier about this, but would you be interested in sharing this post (or others if you prefer) in a youth ministry library for youth pastors?www.calledtoyouthministry.com/resources

I think this could be helpful for many, plus a good way to get word out about your own website.

Let me know, thanks!!