Why not boost teen employment with a training wage?

COMMENTARY Jobs and Labor

Why not boost teen employment with a training wage?

Jun 30, 2014 3 min read
Stephen Moore

Senior Visiting Fellow, Economics

Stephen Moore is a Senior Visiting Fellow in Economics at The Heritage Foundation.

This is the time of year when teenagers scramble to land a summer job, but many states and cities make that search far more difficult.

As a father of two teens, I know first-hand how tough that job search can be and the negative repercussions about teens staying idle — watching TV, playing computer games, and hanging out with the wrong crowd.

So why do states and localities make jobs for first-time workers even harder to find by raising the minimum wage?

Earlier this month, Seattle raised its minimum wage to $15 an hour -- near the highest in the nation and double the federal rate of $7.25.

More jurisdictions will follow Seattle's lead. Almost half the states have already enacted super-minimum wages above the federal rate. This is always done in the name of "fairness," but it's worth asking who really wins and who loses.

While there is lively debate about how minimum wages affect lower-skilled adults, the negative impact on young workers and teens is nearly incontrovertible.

The most compelling evidence comes from the last rise in the federal minimum wage. The rate was raised in three stages in 2007 and 2008. The timing couldn't have been worse because the economy was headed into the headwinds of recession.

As the nearby charts show, the impact was immediate and devastating for young workers. The national teen unemployment rate nearly doubled.

At one point during the recession in 2009, the black teen unemployment rate approached 50 percent — a rate common in many Third World nations.

Also, the teenage work-participation rate plummeted to about 35 percent. This was a 10-percentage-point decline in three years.

In other words, teens just gave up even looking for a job because the government priced them out of the workforce.

The lasting impact of this high teenage unemployment and low entry into the workforce is sharply negative. Wages later in life are higher when the young work earlier.

Skeptics say that the teen unemployment rate soared because the economy was in recession and jobs were hard to come by for every age group.

True, but the teen rate rose even faster than it did for other age groups. Teens were the first tossed out of jobs.

And — as labor economist Richard Vedder of Ohio University has shown — when jobs are scarce, the solution to reducing unemployment is to allow employers to offer lower wages temporarily, not to raise the wage requirement, which only exacerbates the jobless problem.

Very few minimum wage workers are the head of a household or the primary earner. Most workers at the minimum wage receive a pay raise within six months on the job.

This is a training wage. Only about one in 20 workers is paid the minimum wage and the median wage is three times the minimum, or $24 an hour.

A minimum wage of $10 an hour, as the Obama administration wants, slams the employment door shut on workers that aren't worth this amount because they have few on-the-job skills and almost no experience.

Wouldn't it be better for kids to have a job that pays $5 or $6 an hour than no job at all? We can debate what the right wage requirement is for hiring an adult.

But whatever that rate is, let's help every young American who wants a job to get one by setting a federal teen minimum wage of $5 an hour. Call it a training wage.

This would teach kids how to become productive and help them learn vital job skills at a young age. These are the kinds of basic life lessons that you don't learn in a classroom.

The on-the-job training often pays off double or triple in the future as these teens turn into adults.

It should be no surprise to anyone that, after the minimum wage rose in 2007 and 2008, the age group that saw the biggest decline in the labor force was those under the age of 25.

Even as the economy recovered from recession, their labor force participation continued to fall. The first job can be the hardest one to get, and, when we raise the minimum wage, we make that job search all the more difficult.

How is that fair?

 - Stephen Moore is chief economist at the Heritage Foundation.

Originally appeared in the Washington Examiner