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September 03, 2018

Minimum wages hurt young people

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One purported purpose of minimum wage legislation is to increase the incomes of unskilled workers. However, research using US data, plus the bulk of the economic literature, shows that minimum wages usually reduce the job opportunities available to such workers. Youth employment is reduced by 2–3% in response to a 10% increase in the minimum wage. While some workers are lucky enough not to have their hours cut or lose their jobs when minimum wages are imposed or increased, some are not so fortunate. In addition, those youths who are just entering the labor market can find that jobs are not available to them. Alternatively, they may be able to get a job but may not be assigned enough hours to make a decent living. Because on-the-job training and work experience lead to improvements in youths’ labor market skills, these entry-level jobs are needed to propel young workers to better opportunities later down the road. Delayed entry into the world of work delays this training and experience and thus postpones any improvements in youths’ economic well-being.

Youths are often the largest group of workers affected by minimum wages, because they are generally less skilled than older workers. Because minimum wages increase the cost to employers of hiring these young workers, firms may choose instead to hire older, more experienced workers who can generate enough production to justify their minimum wage; or employers may replace young workers with machines, as fast food establishments and grocery stores are doing in the US. To combat employers’ reluctance to hire and train young workers at the minimum wage (a higher wage than employers may feel they are worth), some governments allow “training wages” that are below stated minimum wages for young, entry-level employees to encourage firms to hire and train them. Research shows that these training wages do increase youth employment, both in the US and other OECD countries, compared to minimum wages that do not allow subminimum wages for younger workers.

While minimum wage proponents claim that instituting and increasing minimum wages benefit young, unskilled workers by increasing their incomes, this is only true for those who can find or keep their jobs. Rather than using a minimum wage to increase young people’s incomes, policymakers should implement policies that improve labor market opportunities for youths but do not increase the cost to employers of hiring them. Cash payments or in-kind food or housing assistance for working youths who fall below a certain minimum income would fall into this category. However, a good first step in this direction could be to allow training wages for young workers.

© Charlene Marie Kalenkoski

Read Charlene Marie Kalenkoski’s full article “The effects of minimum wages on youth employment and income

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