Policymakers often propose minimum wages as a way of raising workers’ incomes and thus lifting them out of poverty. However, there is a substantial body of research that shows the negative effects of minimum wages on employment.
Because youths are often the largest beneficiaries of minimum wages, policymakers need to know how minimum wages affect youth employment before
implementing such policies.
When a minimum wage is imposed or raised, the hourly wage of young workers rises. However, employers respond to the increased hourly labor cost for young workers by reducing their hours of work, cutting jobs, or both. In addition, because more youths seek jobs at the higher wage, a gap is created between the number of jobs desired and those available, creating youth unemployment.
Young adults without a job then impose a financial burden on their families or on the social welfare system, while delayed entry into the labor force reduces youths’ lifetime earnings. In addition, employers may reduce or eliminate on-the-job training opportunities that they had previously funded through low entry-level/training wages, thereby also contributing to lower human capital accumulation and lower lifetime incomes.
Rather than using a minimum wage to increase youths’ current incomes, Kalenkoski argues policymakers should consider policies that improve the labor market opportunities of young people but do not increase the cost to employers of hiring young workers.