This week, the Mercatus Center at George Mason University released the results of a study linking rising minimum wages to declining teen employment rates. According to the study, although there could be three possible reasons for the decline in teen employment in the United States since 2000, a rising minimum wage, rising returns to schooling, and increasing competition from immigrants, the authors found that the higher minimum wage was the predominant factor. Additionally, the study suggested that higher minimum wages for teens leads to lower future earnings.
The study, authored by David Neumark of University of California, Irvine, and Cortnie Shupe of the German Institute for Economic Research, on nearly 20 years of data, found that the percentage of teens who weren’t working but still wanted a job plunged from 24% in 1994 to 13.2% in 2009. The study stated that the principal effect of higher minimum wages since 2000, in terms of human capital, was to reduce employment opportunities that could help the teens find jobs later.
The authors write, “Thus, the evidence, if anything, says that teens exposed to higher minimum wages since 2000—the same teens who left combined employment and school enrollment for enrollment only—had lower human capital investment.”
In a paper published by the Federal Reserve Bank of San Francisco in 2015, Neumark noted:
Using a −0.1 elasticity and applying it only to teenagers implies that higher minimum wages have reduced employment opportunities by about 18,600 jobs. An elasticity of −0.2 doubles this number to around 37,300. If we instead use the larger 16–24 age group and apply the smaller elasticity to reflect that a smaller share of this group is affected, the crude estimate of missing jobs rises to about 75,600. Moreover, if some very low-skilled older adults also are affected (as suggested by Clemens and Wither 2014), the number could easily be twice as high, although there is much less evidence on older workers.