In “Hey Dude, Where’s My Job,” Liz Peek of the Fiscal Times reported last week on research suggesting that increases in the minimum wage since 2007 are to blame for a big part of the surge in teen unemployment.
The main statistical evidence comes from a study by the Employment Policies Institute, a business-funded think tank that is devoted to attacking the minimum wage and other mandates that increase labor costs.
The study estimated that the higher minimum wage led to the loss of 114,000 teenage jobs since 2007.
But even if that estimate is accurate, it’s a wild exaggeration to claim that a higher minimum wage caused more than a tiny fraction of recent teen job losses. How tiny? If you believe the EPI study, no more than 7 percent. But other data suggest it might be almost non-existent.
Why? Because median hourly earnings for teenagers were already nearly $8 an hour by the time the federal minimum wage jumped to $7.25.
There is no question that teen unemployment has soared to sky-high levels -- 26.1 percent in July, according to the government’s jobs report on Friday. For black teenagers, the unemployment rate is around 40 percent.
It’s also true that Congress passed a big increase in the federal minimum wage, raising it in three steps from $5.15 an hour in June 2007 to $7.25 in July 2009.
Most economists believe that increases in the minimum wage hurt job creation if the new minimum is higher than what employers would otherwise be willing to pay. And since teenagers hold a disproportionate share of minimum wage jobs, it seems logical that a big jump in the minimum wage would particularly hurt teen employment.
But as the Fiscal Times column notes, the biggest cause of teen unemployment since 2007 has been the acute economic recession.
According to the Bureau of Labor Statistics, the number of employed teenagers (aged 16 to 19) plunged nearly 1.6 million from July 2007 to July 2010. That is 14 times as many jobs as EPI estimates were lost because of the minimum wage.
The EPI study plays up the fact that the minimum wage jumped almost 40 percent from 2007 to 2009. What it doesn’t say is that the actual teenage wages barely increased it all.
The reason is simple: it had been so long since the last mandated increase -- in 1997 – that inflation and economic growth had already pushed average teenage wages to almost $8 an hour.
According to the Bureau of Labor Statistics, real median hourly earnings (adjusted for inflation and measured in 2009 dollars) were about $7 in 1997 and climbed to almost $8.30 in 2003. Median hourly teen wages then fell to about $7.60 in 2006 and climbed back to just about $7.80 in 2009.
That last increase probably did reflect the higher minimum wage. But even so, the increase amounted to only 3 percent over three years, and average real wages were still well below what they had been in 2003.
Business groups, especially those in retailing and restaurants that are heavy on low-wage jobs, never want to be told what they have to pay their workers. And government protections do come with a price. If wages climb faster than productivity, employers will start cutting back. Likewise, government regulations that make it very hard to fire workers make companies much more reluctant to hire.
But the United States didn’t have any of that over the past decade. We has no increase in the minimum wage for ten years, we have had few restrictions on layoffs. Median family incomes essentially stagnated over the past decade, while incomes of those at the very top climbed sharply.
Indeed, a growing number of economists argue that the combination of rising inequality and income squeezes in the middle class fueled the eye-popping surge in consumer debt – from mortgages to credit cards – that ultimately exploded in the worst financial crisis since the 1930s. Since incomes couldn’t keep pace with soaring home prices, among other things, people made up the difference by borrowing.
It’s just a theory, and it might be wrong. But to blame even a significant share of the current misery on recent increases in the minimum wage amounts to blaming the victim and doesn’t hold up.
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