The minimum wage may be to blame for the steady decline in employment that has plagued younger adults for many years, according to a study Wednesday.
The Great Recession renewed interest in teenage employment with so many dropping out of the labor force. But the decline actually predates that economic downturn – begging the question of what’s behind it. The Mercatus Center, a free-market research nonprofit at George Mason University, found increases in the minimum wage may be to blame.
The Mercatus Center examined three possible reasons for why teenage employment has been in decline since 2000. The study looked at minimum wage increases, the larger number of student adults, and increased competition from immigrants. It ultimately concluded that the higher minimum wage is the predominant factor explaining the trend.
“We find some evidence of the expected effects of all three explanatory factors on teen employment and school enrollment,” the study said. “In terms of explaining changes in the behavior of teens age 16–17 since 2000, the role of the minimum wage is predominant.”
The study added that the increased number of people returning to school appeared to have played almost no role – while immigrant competition had a minor role. The research suggests that minimum wage increases account for about a quarter of the shift from them being simultaneously employed and a student to being exclusively enrolled in school.
Economists and lawmakers have debated for decades over whether increasing the minimum wage is a good idea. The question comes down to whether the increased paycheck is offset by negative outcomes that may results from the higher labor costs – like fewer employment opportunities. Younger workers have become more of a focus in recent years.
The study also found the decline has been particularly bad for those between ages 16 and 17. It adds there is no evidence suggesting that higher minimum wages for teenage workers lead to higher future earnings. Additionally, the study found that teens exposed to higher minimum wages had acquired fewer skills later in adulthood.
The study added that the labor force participation rate for teenagers has been declining for even longer – and doesn’t coincide with swings in economic activity. Lawmakers and researchers have examined whether the decline is permanent and what it implies about how tight the labor market is.
The participation rate tracks the number of employed and those actively seeking work as a percentage of the total population. The study found that the percentage of teenagers not in the labor force fell from 24 percent to 13.2 percent between 1994 and 2009.
The labor force participation rate overall has fallen considerably over the years – but not as much as it has for younger adults specifically. The rate generally bottomed out in recent years and now sits at 62.7 percent. A large population of retirees and student adults likely accounts for some, but not all, of that decline.
The study follows previous research which has drawn similar conclusions. The Heritage Foundation, a conservative think tank, found that increasing the minimum wage is especially bad for young and low-skilled workers. Economists have been fairly split on the minimum wage overall, but generally, agree at least some job loss is a risk.
The Fight for $15 and other supporters argue that increasing the minimum wage is necessary to lift low-wage workers out of poverty. Those opposed warn it will actually hurt the poor by reducing employment opportunities – with the impact being worse for those that haven’t yet developed their skills.
The Employment Policies Institute (EPI) has been highly critical of increasing the minimum wage – arguing that the idea puts undue strain on businesses while doing little to help workers. EPI recently released a video showing younger adults in New York City who claimed to be unable to find work because of the higher minimum wage locally.
Some lawmakers and economists have suggested special exemptions for teenagers when raising the minimum wage. Those younger adults then, the hope is, wouldn’t be priced out of the entry level jobs needed to develop their skills. Massachusetts small businesses have been pushing one such idea in their state, reports a local NBC affiliate.