The real cost of minimum wage

Everyone is paying attention to the health care debate and no one is paying attention to the unemployment rate. Not the unemployment rate of 10.2%; the unemployment rate of 25.9%. Unemployment has risen to 25.9% in September for teens between 16 and 19 years old; the highest rate recorded since 1948. How can this be?

The unemployment rate for the age group was 16.9% in December 2007 when the recession began. Recessions amplify disadvantages such as lack of work experience. But, where do you get work experience and develop a work ethic if you can’t find a job in the first place? Studies have shown that being shut out of the labor market early in one’s career can lead to persistent, negative effects on a person’s ability to find a job and earn competitive wages for up to a decade or more. A study by researchers at Stanford found that those who do not work as teenagers have lower long-term wages and employability even after 10 years. A high-wage society can only come by making workers more productive, and by destroying starter jobs the minimum wage may reduce long-term earnings.
According to Uncle Sam's Bureau of Labor Statistics:
• Seasonally adjusted teenage unemployment hit 25.9%. That is the highest rate in the nearly 62 years BLS has been reporting this number. The previous record was last month's 25.5%. The record before that was 24.1% in November and December of 1982.



• Unemployment among black teens not enrolled in school is over 50%.
• The rate among 20-24 year-olds is also alarmingly high at 15.1%.

With the economy trillions of dollars in the hole, $0.70 sounds like nothing. The first federal minimum-wage law, the Fair Labor Standards Act, passed in 1938, with a 25-cent-per-hour wage floor and a 44-hour workweek ceiling for most employees. (It also banned child labor.) The federal minimum wage has risen from $5.15 to $7.25 since 2007; the latest raise on July 24, 2009. In total, the extra $2.10 translates to only $4,400 per year for a full-time minimum-wage worker, nosing his/her family of four just above the poverty line.

Washington will deny the reality, and the media won't make the connection, but one reason for these job losses is the rising minimum wage. People that know me, know that I predicted the rise in the minimum wage would result in the loss of teen jobs and sure enough, there are 691,000 fewer teens working now that in July 2007. Set against a backdrop of retired workers who were forced to rejoin the workforce to pay bills parents who’ve been laid off and are trying to care for children, and adults who have seen their retirement funds evaporate (maybe that kind older lady taking your coffee order at McDonalds isn’t working there because she wants to stay busy), young people often find it hard to get any sympathy. Particularly when it seems like the only thing they’re losing is pocket money.

Maybe it can be declared a “crises” and Congress can create a teenage wage of $4 or $5 an hour to help put hundreds of thousands of teens back to work. Without any change, we can expect teen unemployment to remain very high for a long time and place a long-term burden on our future work force.

Things are not all that bad though; the unemployment rate for 20 to 24-year-olds dropped to a still-high 14.9% in September. But, it’s the second month the group’s unemployment rate decreased.