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The war on jobs

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By Michael Saltsman
Monday, July 22, 2013, 9:00 p.m.
 

Within hours of Thomas Perez's confirmation as Secretary of Labor last week, he announced that his top goal would be job creation. Strangely, he's also planning to push for a minimum wage hike — a strong sign that the new secretary doesn't understand how to achieve his goal.

In reality, a higher minimum wage will have the opposite effect on job creation, disproportionately hurting the teens and young adults who need entry-level jobs to be successful later in life.

Nationally, the unemployment rate for all teens has been above 20 percent every summer since 2009; it's 18.7 percent in Pennsylvania. But for black teens, unemployment has been above 30 percent over the same period. That's four straight summers — soon to be five — of record teen unemployment.

These disheartening numbers have occurred during or since the 40 percent hike in the federal minimum wage — from $5.15 an hour to $7.25 — from 2007 to 2009. The timing is more than just coincidence.

Writing in 2010, economists at Miami and Trinity universities estimated that at least 114,000 young adults lost job opportunities as a direct result of federal wage hikes. Among less-educated young black males, the same team of economists found that the job losses associated with the federal wage hike in some states were actually worse than the consequences of the Great Recession.

One need only look at the businesses where young adults are employed to understand why. Roughly 40 percent of employed teens work in the leisure and hospitality industry (think restaurants, movie theaters and hotels), while another 25 percent work in retail jobs at grocery stores, service stations and the like.

The profit margins of these types of businesses are generally 2 or 3 cents on every sales dollar. Sudden spikes in labor costs — like a 40-percent jump in the minimum wage in two years — leave these businesses with two options: raise prices or reduce costs.

When raising prices isn't an option — good luck with that in a rough economy, Mr. Perez — the only other option is to provide the same product with less service. This might mean having waiters bus their own tables or opting for a self-service alternative to young grocery baggers. The data bear this trend out: Teens' share of employment in the leisure and hospitality industry dropped by more than 20 percent from 2007 to 2011. In retail, it's fallen by nearly 30 percent over that period.

These losses can be devastating for a teenager's future. Teens start climbing the employment ladder through their first summer jobs. Further minimum wage hikes only postpone their ability to get these jobs. Research published in the Journal of Human Resources found that even a six-month spell of unemployment can have lasting effects for a young adult, the equivalent of forgoing a quarter-year of schooling. On the flip side, part-time work in high school has been linked to better outcomes in the labor market following graduation.

Most Pittsburgh parents want nothing more than a good future for their kids, and attaining that future means part-time work experience now is crucial. Unfortunately, the minimum wage hike that Secretary Perez desperately wants will only put those opportunities further out of reach.

Michael Saltsman is the research director at the Employment Policies Institute.

 

 
 


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