Higher minimum wages help explain decline in teen employment

 
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July 18, 2019

From hazy days spent lifeguarding at the local swimming hole to doling out endless soft-serve ice cream cones, summer means millions of teens across the U.S. are getting to work.

Around 6 million people aged 16 to 19 will work this summer, according to the U.S. Bureau of Labor Statistics (BLS). The rest of the year, employment levels for these teens hover around 4 million to 5 million, so an additional 1 million to 2 million teens usually get jobs during the summer.

While getting a job remains a summer rite of passage for some teens, the overall labor force participation rate for teens – the percentage of teens working or looking for work compared with the total number of teens – has been declining for decades.

“The [overall] participation rate of teens fell from 52.7% in 1994 to 43.9% in 2004 and to 34% in 2014,” according to David Neumark, Chancellors Professor of Economics at the University of California, Irvine, and Cortnie Shupe, a doctoral student at the Free University of Berlin. They are authors of new research published in Labour Economics, “Declining Teen Employment: Minimum Wages, Returns to Schooling, and Immigration.” The study explores three factors that help explain the decline in teen employment:

  • Minimum-wage increases.
  • Higher wages that come from graduating high school.
  • A higher share of “low-skilled immigrants” from Spanish-speaking regions, who, according to the authors, tend to compete for similar jobs.

“People have been talking about decline of teen employment in terms of immigration and the education phenomenon,” says Neumark. By adding minimum-wage increases to the mix, “we wanted to run a horse race between the three [factors] to see what we could get.”

Higher minimum wages may be the reason teens aren’t working as much

Neumark and Shupe peg the decline in labor force participation to more teens deciding to focus on school rather than going to school while also working, according to their analysis of BLS data.

Of the three factors they studied, minimum-wage increases most explained the drop in teens’ workforce participation. The federal minimum wage has remained at $7.25 an hour since 2009, but many states have enacted minimum wages higher than the federal level.

These laws are “leading students to increase their focus on schooling to meet a higher productivity standard for jobs with a higher minimum wage,” the authors write.

“Teens are, in the aggregate, the least-skilled group in the population,” says Neumark. “They don’t have any work experience, typically. They have lower measured wages, so when the minimum wage imposes a floor that employers can’t get above, it will fall on the very least skilled.”

Neumark and Shupe built a large dataset to explore teen employment from 1986 to 2015 using information from BLS, the U.S. Census Bureau, the National Center for Education Statistics and other academic research.

All three factors – minimum-wage increases, financial returns from staying in school and the share of immigrants in the workforce – played some role in more 16- and 17-year-olds being in school while not working. These factors were weaker in explaining declining participation rates for 18- and 19-year-olds.

What teen employment might look like in a world without higher minimum wages

The rate of teens who were in school but not working began to rise around the year 2000, and the authors took a closer look at the effects of the three factors from 2000 to 2015. They performed a data simulation comparing actual rates of teens in school but not working to predicted rates, assuming minimum wages had remained unchanged since 1999.

Again, Neumark and Shupe found that of the three factors, minimum-wage increases had the biggest effect on declining teen employment, particularly for 16- and 17-year-olds.

Minimum-wage increases accounted for 21% of the drop in 16- and 17-year-olds who were in school while working and 28% of the increase in the share of teens in school but not working, according to their simulation. The simulation showed the incentive of higher wages from staying in school had almost no employment effect on 16- and 17-year-olds, and there were only small effects from immigration.

“The minimum wage effects are large and robust,” Neumark and Shupe write.

 

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Citation: Neumark, David; Shupe, Cortnie. "Declining teen employment: minimum wages, returns to schooling, and immigration," Labour Economics, April 2019, doi.org/10.1016/j.labeco.2019.03.008.