Teen Unemployment And the Minimum Wage - A Pelican Institute Study
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Teen Unemployment
And the Minimum Wage
A Pelican Institute Study
By James PlummerExecutive Summary
As the Great Recession drags on, unemployment remains a major concern throughout the state of
Louisiana and the nation as a whole. While the jobs situation in Louisiana is somewhat better than the
national average, the unemployment rate for working-age teens (16-19) is astronomical and bodes ill
for the future of Louisiana's youth.
Figures provided by the U.S. Census Bureau1 reveal shocking changes for the worse in regards to
teenage2 employment in Louisiana:
• Between 2006 and 2011, the teenage unemployment rate in Louisiana more than doubled from
13.2% to 26.5%
• Louisiana teens with less than a high school education have seen their unemployment rate
rocket from 13.6% in 2006 to 34.4% in 2011. This is an increase of 153%.
• The average hours worked per week for Louisiana teens fell from 9.7 to 5.7 hours – a decrease
of 41.2%
• The percentage of Louisiana teenagers who have a job declined from 35.4% in 2006 to 22.8%
in 2011. That is a decline of 35.6%.
A new analysis3 finds that recent increases in the federal minimum wage have accelerated this trend.
According to this analysis, increases in the minimum wage from $5.15 to $7.25 have cost Louisiana
teenagers over 6,600 jobs.
It is not surprising that a 41 percent increase in the cost of unskilled labor would result in an excess
supply of that labor. Policymakers should keep these basic economic facts in mind when contemplating
minimum wage increases.
Louisiana employment
Louisiana has undergone a number of economic changes in recent years, most notably the exodus from
and slow repopulation of the New Orleans area following the storms and floods of 2005. The growth of
film and television production in Louisiana, thanks to generous tax credits and fewer regulations
relative to California, has been another major change.
Another change that must be taken into account, however, is the 41% increase in the federal minimum
wage. (Louisiana has no state minimum wage, so the national minimum wage law prevails.)
1 Current Population Survey (CPS) data via http://www.bls.gov/cps/
2 This and subsequent references to teenagers will refer only to 16-19 year-olds.
3 Update of analysis by William E. Even and David A. Macpherson, The Teen Employment Crisis. 2010. Employment
Policies Institute.While unemployment as of May 2012 remains a full point lower in Louisiana (7.2%) than nationwide
(8.2%)4; the 2011 unemployment rate for teenagers in Louisiana reached 26.5%5. That represents a
doubling of unemployment in just five years among the sector of the population most effected by the
minimum wage law.6
Minimum wage and teenage unemployment
While the 2008 economic
Louisiana 16-19 year-olds crisis' unfolding
concurrently with the new
30 8 wage law obviously did not
7 help matters, the new
25
Minimum wage in dollars
analysis of Louisiana labor
Unemployment rate %
6
20
5 data indicates that 6,613
Louisiana teens were left
15 4
unemployed by the most
3
10 recent series of hikes to the
2 federal minimum wage.7
5
1
0 The situation appears
0
2005 2006 2007 2008 2009 2010 worse when one looks
2011
beyond conventional
La. unemployment (16-19) Minimum wage in dollars unemployment statistics,
which measure only the
active labor force. When you include those driven out of the labor force and those so discouraged they
never bother to enter into the active labor force, the percentage of Louisiana teenagers who have a job
declined from 35.4% in 2006 to 22.8% in 2011.8
The decreased demand for unskilled labor at higher wages extends beyond the number of employed
teens to the amount of work those employed actually do. The hours per week worked by employed
teens has dropped in the state of Louisiana from 9.7 to 5.7 hours, a decrease of 41.2%
Supply and demand
The most basic and immutable laws of economics are those of supply and demand. Simply stated, the
higher the price of a commodity, the less of the demand. The commodity of labor is not exempt from
this fundamental reality.
In a free market, supply and demand meet at an equilibrium price point where the quantity demanded
equals the quantity supplied. However, when a government interferes with this equilibrium by setting
artificial price ceilings or price floors this equilibrium cannot be reached. When a price ceiling is set,
as with gasoline during the 1970s, there results a shortage of supply. When a price floor such as a
minimum wage is set, the result is an excess of supply. When the commodity in question is labor, the
excess supply of labor is, in fact, unemployed workers.
4 http://www.bls.gov/lau/home.htm
5 CPS data
6 Ibid.
7 Update of Even and Macpherson, 2010
8 Ibid.This is relatively uncontroversial among economists who have studied the effects of a minimum wage on employment. In a recent analysis published by the Cato Institute, former deputy assistant secretary for the U.S. Labor Department Mark Wilson put it this way: “85 percent of the most credible studies point to negative employment effects, and in the studies that focused on the least-skilled groups most likely to be adversely affected by minimum wage, the evidence for disemployment effects are especially strong. In contrast, there are very few, if any, studies that provide convincing evidence of positive employment effects of minimum wages.”9 Yet, despite almost 75 years of evidence of the disemployment effects since the first federal minimum wage law was passed in 1938, calls to hike up the minimum wage continue. As this report goes to press, some such activists are engaging in a “day of action” protesting employers and members of Congress in order to raise the minimum wage.10 And politicians are still introducing measures to increase the minimum wage.11 Public-choice economists have suggested much of this political support comes from unions (and thus, their allied lawmakers) who wish to undermine their lower-priced competition in labor markets.12 13 Skilled and unskilled As the debate over education reform continues in Louisiana, many commentators have pointed to low college-graduation rates in the state and suggested a greater emphasis on trade schools and high-school career training as an alternative to a four-year Bachelors' degree. These policies may make sense, but we should also remember the unique value of on-the-job training. For many college graduates and graduation-track students, unpaid internships in white-collar professions offer just such training. But lower-skilled workers searching for a bluer-collar career have no such option. And an artificially high minimum wage may preclude these workers from learning on the job at a lower training wage commensurate with their lack of experience. The Cato Institute study pointed out that, “Research finds that some employers will replace their lowest-skilled workers with somewhat higher-skilled workers in response to increases in the minimum wage,”14 in order to get what they are paying for. 9 Wilson, Mark. The Negative Effects of Minimum Wage Laws. Cato Institute. June 21, 2012. 10 http://www.iwj.org/home-page/featured-campaigns/minimum-wage-campaign 11 See, e.g. http://thomas.loc.gov/cgi-bin/query/z?c112:H.R.5901: 12 Rustici, Thomas. “A Public Choice View of the Minimum Wage.” Cato Journal, 1985. www.cato.org/pubs/journal/cj5n1/cj5n1-6.pdf 13 Graphic courtesy Idaho Freedom Foundation 14 Wilson, Mark. The Negative Effects of Minimum Wage Laws. Cato Institute. June 21, 2012.
The vast majority of those 6,613 Unemployment, less than high school
Louisiana teenagers unemployed
by the federal wage law were, Louisiana 16-19 year-olds
unsurprisingly, from the least 40.0%
Unemployment rate
skilled among the labor force --
30.0%
those without a high school
degree. By 2011, the 20.0%
unemployment rate for teenagers 10.0%
with less than a high school
0.0%
degree reached 34.4%. The data
2005 2006 2007 2008 2009 2010 2011
further indicate that 5,723
Louisiana teens were in that
unfortunate number.15 Although 65.1% of working-age teenagers statewide do not yet have a high
school degree16, those 5,723 represent 86.5% of the unemployed teenaged population in the state.
Nobel laureate Milton Friedman summed it up well: "The minimum wage law is most properly
described as a law saying that employers must discriminate against workers who have low skills."17
Conclusion
Louisiana's edge in the nation's dismal employment situation is due in part to the lack of a state
minimum wage. States like California, which impose a minimum wage higher than mandated by
federal law, are struggling with employment situations much more dire than Louisiana's.
Moreover, the growing teenage unemployment problem in Louisiana could be ameliorated by repealing
the federal minimum wage. Louisiana would be better served by a “natural minimum wage” where
supply meets demand in a free market for unskilled labor. Thousands of teenagers – not to mention
other Louisianans – would thus have the chance to enter the workforce and receive valuable real-world
on-the-job training presently not available to them. This would also obviate the need for increased
state expenditures on vocational training in a educational system that still struggles (despite recent
improvement) to teach basics such as math and reading.
Louisiana lawmakers have wisely resisted calls to impose a higher state minimum wage. While
advocates for such laws claim they will help the poor, the evidence proves otherwise. Increases in the
minimum wage serve primarily to increase the unemployment rate and exacerbate other employment
problems such as the lack of skills among the labor force. Thus, lawmakers in Baton Rouge should
remain steadfast in opposition to well-intended but economically futile schemes.
15 Update of Even and Macpherson, 2010
16 CPS data
17 Friedman, Milton. The Open Mind. WPIX, December 7, 1975You can also read
