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Why We Should Eliminate the Minimum Wage

The growth of teenage unemployment has ominous implications for the future — but there is a solution, if we are willing to face economic reality.

According to a host of sources, joblessness among young people is growing. For example, the Christian Science Monitor said that the unemployment rate for African-Americans in the 16-19 year-old range is 40.5 percent across the nation. According to Andrew Sum, a nationally recognized expert on teen employment who heads the Center for Labor Market Studies at Northeastern University, the reality is bleak. As Sum noted, “Proportionally, more kids have lost jobs in the past few years than the entire country lost in the Great Depression.”

This trend is prevalent in North Carolina as well, with a teenage unemployment rate around 30 percent this year, compared to 20 percent a decade ago.

With the economy still struggling to recover, teenagers have found that they have been crowded out of job opportunities traditionally much more open to them in previous generations. According to an analysis of monthly Current Population Survey data from the Census Bureau, in 2011 13 percent of leisure and hospitality workers were teens. The number is down from 17 percent in 2003. Similarly, the share of retail trade workers in their teens dropped from 10 percent to less than 7 percent during that same time frame.

Why are teenagers hit proportionately worse when compared to other age groups? Although the obvious scheduling conflicts around school and teens’ limited skill sets play a role, the biggest impediment for teenagers is an obstacle our government perpetuates — minimum wage laws. Contrary to popular belief among politicians, minimum wage increases actually make low-income citizens worse off by pricing them out of a job due to their minimal skill sets and resources. Linda Gorman, senior fellow at the Independence Institute, sums up the problems with minimum wage laws: “Although minimum wage laws can set wages, they cannot guarantee jobs. In practice they often price low-skilled workers out of the labor market.”

It should be noted that this belief is widely held by most economists, not just conservative economists, as over 90 percent of economists believe minimum wage increases lead to more unemployment in low-skilled workers.

A study by labor economists William Even (Miami University) and David Macpherson (Trinity University) appears to back Ms. Gorman’s claim. Their recently updated 2010 study suggests that North Carolina’s minimum wage increases between 2005 and 2011 are responsible for more than 10,000 additional teenagers being out of work today, compared to what would have happened if the wage law had remained untouched. North Carolina’s minimum wage was increased from $5.15 to $7.25 over that time period.

Furthermore, Professor Thomas Mroz of UNC-Chapel Hill and economist Timothy Savage of Welch Consulting conducted research to illustrate some of the long-term effects on people when they are priced out of the labor market by minimum wage laws.

In their analysis of past literature on the subject, Mroz and Savage quoted previous works that found “the odds that a young woman works this year are nearly eight times higher if she worked last year than if she did not.” Perhaps most revealing as to why teenage unemployment has long-lasting effects can be summed up in this statement: “Involuntary unemployment perturbs an individual’s optimal time path of human capital accumulation. This is because it prevents on-the-job training, resulting in an under-investment in human capital after the unemployment spell takes place.” This economic principle indicates the importance of adopting public policy that seeks to include teenagers in the labor force.

When teens are involuntarily unemployed, they lose the chance to gain important life skills on the job, such as the responsibility of showing up on time and working in a team. These jobs also help teens stay out of trouble, understand marketplace activity, and save money for future expenses, such as education. The broader, long-term societal implications of cutting off the first rung of the career ladder for teens are quite profound. Crime rates and greater government dependency are first and foremost among them.

Although eliminating the minimum wage seems heartless at first, let’s consider the broader impact it has on our teenagers and their ability to climb the ladder of financial stability.

Alex Rector is an intern at the Civitas Institute in Raleigh.

This article was posted in Economy by Alex Rector on July 31, 2012 at 3:17 PM.

© 2011 The Civitas Institute. Visit us on the web at www.nccivitas.org.
This article can be found at http://www.nccivitas.org/2012/why-we-should-eliminate-the-minimum-wage/

Comments on this article

  • 1

    Tim Jowers
    Tim Jowers Aug 01, 2012 at 8:54

    The correct solution is to eliminate tax evasive wages. The IRS code facilitates not paying tax for Farm workers and Construction workers. That’s wrong. But best solution is to move from income tax to consumption tax and other taxes. This would force illegal workers who do not presently pay income taxes and their employers who do not presently pay payroll taxes to pay. It would also eliminate the benefit of offshoring and manufacturing ex-USA. If a good made in China embodies the same full tax load as a good made in the USA, then the price advantage of China disappears. Today we have an unfair tax system which taxes honest Americans and lets everyone dodge taxes.

  • 2

    Alex Rector
    Alex Rector Aug 01, 2012 at 9:44

    Tim, tax reform is definitely a huge issue. A consumption tax would be nice if the income tax would be eliminated, but it is not without its faults. The US tax code is home to so much special interest fraud it’s unbelievable.

  • 3

    Soapy Johnson
    Soapy Johnson Aug 01, 2012 at 11:18

    Same people who hear “outsourcing” and are trained to have seizures, support policies which price jobs out of America. A $50,000 yearly salary translates into over $70,000 cost to the employer, punctuating the reality that increases in minimum wage hurt the unskilled — http://placeitonluckydan.com/2012/07/100-american-china/

  • 4

    Jowers Tim
    Jowers Tim Jun 23, 2014 at 14:59

    Yes but the facts are all wrong

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