This summer’s 9.2 percent youth unemployment rate is deceptively low — and disguises a disturbing trend. Nearly 11 million teenagers ages 16-19 have dropped out of the labor force entirely, which means they don’t have a job and aren’t seeking one. This represents a nearly 20-percentage point decline from two decades ago, when more than half of all teens were in the labor force.
Some reasons for teens’ workforce walk-out are positive. The decision to participate in a pre-college program in the summer months, for instance, is arguably a good development. But other reasons are more sinister: According to a Mercatus Center study by economists David Neumark and Cortnie Shupe, state and local minimum-wage increases are a “predominant factor” in teenagers dropping out of the labor force.
Minimum-wage increases have proliferated at the local level: 18 states and localities increased their wage floors this summer alone. Businesses unable to offset the cost on price-averse customers have instead turned to other alternatives to reduce labor costs. McDonald’s announced plans to add self-service kiosks to all U.S. locations by 2020; earlier this year, the restaurant chain Red Robin announced it was eliminating all busboy positions in its 570 locations.
Some teens can still find a stepping stone in the hospitality industry, which remains the largest summer youth employer. Others aren’t so lucky: Our organization, the Employment Policies Institute, used Facebook to compile over 300 stories of teenagers who were unable to find work this summer. We’ve featured more than six dozen of them on our website, FacesOf15.com.
One teen in Phoenix (where the minimum wage is rising rapidly) noted the catch-22 of being a young jobseeker: Employers want someone with job experience but teens can’t get the experience if someone doesn’t take a chance to hire them first.
A recent study authored by Noah Williams, an economics professor at the University of Wisconsin-Madison, provides a state-specific example of these consequences. Williams looked at the series of increases implemented in Minnesota starting in 2014 and compared the state to neighboring Wisconsin where the minimum wage was held constant. Williams found that since Minnesota began phasing in their minimum-wage increases in 2014, youth employment in Minnesota has dropped by nine percent; over the same time period in Wisconsin, youth employment has increased by nearly 11 percent.
Teenagers missing out on a summer job are missing out on more than just extra spending money in the short-term. Economists Christopher Ruhm and Charles Baum from the University of Virginia and Middle Tennessee State University found that teenagers with part-time job experience had roughly seven percent higher annual earnings later in life compared to their peers without early exposure to the labor market. On the flip side, the aforementioned Mercatus study found some evidence that teens living in higher minimum-wage states saw less employment opportunities and had lower wages later on in life.
Teenagers earn more than just a paycheck through summer jobs, but rising minimum wages are robbing teens of these opportunities. State and local legislators should be wary before mandating wage hikes that harm those they are intended to help.
Mike Saltsman is managing director of the Employment Policies Institute, where Samantha Summers is communications director.