School’s almost out, and the only thing hotter than the weather is parents’ desire to get their teens out of the house and into the summer workforce.
This summer, that’ll be easier than usual; the teen unemployment rate has dipped below 13 percent — a level not seen since the Clinton years.
But it’s not all good news. Despite the low youth unemployment rate, the number of teenagers who have exited the labor force is near an all-time high. One factor to blame: Aggressive increases in the minimum wage at the state and local level.
For the past five years, the summer teen labor force participation rate (between May and August) has held steady around 35 percent; as recently as 2001, this figure was above 50 percent. A 2017 report by the Bureau of Labor Statistics identified some arguably-beneficial reasons for this trend, such as teens opting to enroll in summer school over a summer job.
But there’s another not-so-beneficial reason: A rising minimum wage.
A recent Mercatus Center study, authored by economists David Neumark and Cortnie Shupe, identified higher minimum wages as the “predominant factor” in the decline in the teen labor force participation rate. The economists studied the sharp decline in teen employment since 2000, and cited that “a rising minimum wage [on the state and federal level] could have priced some teenagers out of the labor market.”
There are a few reasons for that. For starters, a higher wage rate means some service jobs are being filled by older, more-skilled employees. A Drexel University report tracked a five-percentage point drop in the share of teens working restaurant jobs over the last two decades. As the minimum wage rises, employers look for their job applicants whose skill sets them apart from a 16-year-old with little to no work experience.
Minimum wage increases are also a leading factor in businesses being forced to provide the same service at a lower cost — either by automating or just eliminating certain positions. National restaurant chain Red Robin announced earlier this year that the casual diner would eliminate all busboy positions at its 570 locations throughout the country. This follows the trend of other chains including Panera and McDonalds, which have replaced cashier jobs with self-service tablets.
Automation might be a convenience, but it’s a convenience that used to be part of someone’s job description.
Other consequences of rising labor costs are business closures. Breaker’s Water Park in Arizona, for instance, stated that minimum wage increases were taking away all of the park’s profit, and the owner made the unfortunate decision to shut down entirely, eliminating dozens of potential summer jobs for teens. Breaker’s isn’t an isolated example; our organization has compiled dozens of more stories of businesses affected by minimum wage increase that can be viewed at Facesof15.com.
Entry-level jobs allow teens to earn more than a paycheck over the summer break; these job opportunities also teach teens valuable job skills that will carry with them throughout their careers. In an earlier study from our organization, economists Dr. Christopher Ruhm and Dr. Charles Baum from University of Virginia and Middle Tennessee State University found that teenagers who held part-time jobs realized annual earnings that were roughly seven percent higher compared to their fellow classmates who didn’t work.
By contrast, the aforementioned Mercatus study found no long-term beneficial earnings impact for teens from a higher minimum wage.
The decline in teen employment should be worrisome for economists and parents alike. “Fight for $15” advocates pushing for drastic rises in the minimum wage should continue to think about who their policies are actually impacting.
As the evidence demonstrates, teenagers have become the victims.