Teens vs. the Laws of Economics—Teens Lose

Arizona hiked its minimum wage and now teenage workers are getting the boot, according to the Arizona Republic. The newspaper reports:

The Employment Policies Institute in Washington, which opposed the recent increases, cited 2003 data by Federal Reserve economists showing a 10 percent increase caused a 2 percent to 3 percent decrease in employment.

The whole thing here.

My Reason colleagues offer some additional insights here and here.  

Comments

[brian423 (not Brian24)]

Hmm. Paved with good intentions.

[Dan T.]

From the article:

"Messner's monthly cost to train an employee has jumped from $440 to $580 as the turnover rate remains high.

"We go to great lengths to hang on to our high school workers, but there are a lot of kids who come in and get one check in their pocket and feel like they're living large and out the door they go," he said. "We never get our return on investment when that happens."

So a business owner pays his employees the lowest amount he can legally get away with and then he wonders why turnover is high and it's costing him in the long run to keep training new workers?

I know it's just one example, but it's a lousy one if you're trying to blame minimum wage for this guy's problems.

[joe]

Dan T. beat me to it.

[Cab]

High turnover must mean there are better paying jobs out there that his employees are finding.

Dan T., joe. C'mon, you guys have to think the market is a better regulator of the wage rate than the government is, you just have to.

[R C Dean]

High turnover must mean there are better paying jobs out there that his employees are finding.

Not necessarily, Cab.

You would be shocked at the number of low-wage workers who either (a) don't really need the job to put food on the table (your classic teenager living at home, or shiftless no-good douchebag sponging off his girlfriend), or (b) quit a job as soon as they have enough cash to live on for a few weeks.

And a higher minimum wage doesn't affect (a) at all, and could increase turnover from your (b)s.

[Dan T.]

Dan T., joe. C'mon, you guys have to think the market is a better regulator of the wage rate than the government is, you just have to.

I agree that it is, certainly. The market ensures that people are paid according to the skills and effort they bring to the table.

The problem is that people without in-demand skills still need money to live on. The market, to be blunt, doesn't care about this.

To me, minimum wage is something of an agreement between the people being willing to pay a little more for stuff in exchange for workers earning a little more than what they're worth.

[Abdul]

Hmmm.... if only there were some undergorund economy in buying and selling contraband which those teenagers could get involved in which would actually pay more than minimum wage.

[Nascar Dad]

Dan T.,

I won't blame the parlor owner's problems on the minimum wage, but I will blame the problems of the kids who lost their jobs on it.

The "we go to great lengths to hang on to our high school workers" line is pretty funny, though. Like what? These "great lengths" obviously don't include something like paying above minimum wage. Did he say pretty please when he asked them not to quit?

[joe]

Cab,

"High turnover must mean there are better paying jobs out there that his employees are finding."

That's some of it, although dropping out of the work force is another explaination.

"Dan T., joe. C'mon, you guys have to think the market is a better regulator of the wage rate than the government is, you just have to."

"More economically efficient" is not the only defintion of "better." There is the ethical argument Dan T makes above.

But for the most part, yes. It is only at the margins, where there are such incredible imbalances in power that the functioning of the market gets swamped, that I see the need for interventnion, and even then, a light touch is better.

[Nascar Dad]

In any case, the way I understand the arguments for minimum wage, high school students losing their jobs over this isn't really a problem. The minimum wage is there to make it easier (less difficult? less impossible?) for an adult to support himself. Some will expand the goal to making an adult (or 2 adults) able to support a child or children as well, but they are generally not trying to enrich teenagers.

[Tim]

Do I have to point out that it doesn't matter if there is no negative consequence to a law that determines what one does in regard to what they pay a person that voluntarily takes a job? The offense is the law itself and the destruction to private property rights. The only two people that have any right to say anything about wages for any job is the employer and the employee.

[fyodor]

The teenage unemployment rate is always a much better reflection of the effects of minimum wage laws than the overall unemployment rate.

In this case, those still with jobs have 10% more, but 2 to 3 percent less have jobs. That means the overall group is making more, but a small minority within it are making drastically less. This is the best one can reasonably expect from a minimum wage increase (as regards the employment issue, strictly), and to some it may be an improvement. Certainly to those who working and making more it is. To those not working, it clearly isn't. On the "pragmatic" or "utlitarian" level, it's purely a matter of how you want to look at it. On the "freedom" aspect of it, by contrast, it's quite clear-cut.

[P Brooks]

"The "we go to great lengths to hang on to our high school workers" line is pretty funny, though. Like what? These "great lengths" obviously don't include something like paying above minimum wage."

Yes, and as we all know, consumers seek out the most expensive suppliers of commodity goods and services. That's why the parking lots at Walmart and McDonalds are always empty. The business owners in the article should try hanging a sign in the window which reads: "We pay above-market wages so you can pay above-market prices. Take a number for faster service."

[Ron Bailey]

Abdul: Unfortunately, selling drugs apparently doesn't pay much more than the current minimum wage, much less the new higher one, according to a 2000 article in the Quarterly Journal of Economics entitled "AN ECONOMIC ANALYSIS OF A DRUG-SELLING GANG'S FINANCES."

To wit: "...the hourly wage earned by the typical foot soldier was below the federal minimum wage."

[joe]

A one-time snapshot of the teenage unemployment rate is going to be of limited value.

If the "hidden productivity" advances that result from a happier labor force come to pass - as Messner's statement about training costs indicates - then we'd expect to see him staff back up as his lower training costs compensate for his higher wage costs.

Although, with a higher wage, he may well find himself staffing back up with adults. I'm not sure why fyodor thinks this shouldn't be considered.

[Cab]

Dan. T., joe - fair enough.

[Thomas Paine\'s Goiter]

(b) quit a job as soon as they have enough cash to live on for a few weeks.

Welcome to the New Orleans job market. Turnover is over 200%.

[P Brooks]

"...the overall group is making more, but a small minority within it are making drastically less.
"...to some it may be an improvement. Certainly to those who working and making more it is. To those not working, it clearly isn't."

So the redistribution of income which is the explicit goal of the minimum wage hike is not actually from the evil blood-sucking capitalists to the oppressed workers, but rather from one segment of the oppressed worker population to another.

[Rich Ard]

Ron,

Selling drugs part-time to other teens, professionals or a college clientele likely brings a far greater return than working as a gang functionary, and with much lower risk.

I don't know how the breakdown of street gang sellers v. part-time stoners comes out, but it ain't just in the city that baggies change hands.

[lunchstealer]

Although, with a higher wage, he may well find himself staffing back up with adults. I'm not sure why fyodor thinks this shouldn't be considered.

The rhetoric of the minimum wage certainly assumes this. The assumption is that people are trying to raise families on a minimum wage job. The people we see being hurt by this are likely to be highschool and college students out for supplemental income to support their leisure* activities through temporary employment. Young backpackers and slackers of all ilk are going to bear the brunt of the minimum wage increase, while the extremely-unskilled laborer with a family will be reaping the benefits. I'd like to see some stats on the distribution of wages long-term employees, and what percentage of people who'd held a job for, say, six months, are below the new target minimum wage.

[fyodor]

Although, with a higher wage, he may well find himself staffing back up with adults. I'm not sure why fyodor thinks this shouldn't be considered.

Not sure what you mean, but perhaps you're suggesting that teenagers are being replaced by adults and so teenage employment declines are being equaled by adult employment gains? Perhaps, to some degree, but I'd be skeptical it's anywhere near a one to one ratio without supporting evidence. Point taken, though, that it's possible.

[ChrisO]

Although, with a higher wage, he may well find himself staffing back up with adults. I'm not sure why fyodor thinks this shouldn't be considered.

Here's a guess: teenagers working for the minimum wage are more likely to be 'on their way somewhere' and often have something on the ball. Adults working for that same wage often have issues. And the last thing you want as an employer in such a business is "issues."

Anyway, all of this amounts to private transactions that are none of the government's business.

[John]

Two things cause turnover in this case. One, as RC points out, kids work over the summer or when they need some cash and then quit when they have enough for spring break or a car or whatever. Since they live at home need to pay bills they can do that. Second, it is hard to get a job if you have no work history. Kids who have just turned 16 or are just entering the workforce can't get better paying jobs because they have no work history. They take lousy low paying jobs for a few months, get a work history and then move on to better jobs. The turnover just shows how raising the minimum wage cuts off the bottom of the economic ladder for teenagers or anyone else just entering the workforce.

But hey, it is for the children so we have to do it. It makes people like Joe and Dan T feel good. Fuck it, who cares what the facts or the economics say.

[Abdul]

"Unfortunately, selling drugs apparently doesn't pay much more than the current minimum wage"

What! Next you'll tell me that drug gangs use child labor too. Can't we send a SWAT team out there to enforce our labor laws?

[Dan T.]

Yes, and as we all know, consumers seek out the most expensive suppliers of commodity goods and services. That's why the parking lots at Walmart and McDonalds are always empty. The business owners in the article should try hanging a sign in the window which reads: "We pay above-market wages so you can pay above-market prices. Take a number for faster service."

It goes more like this: the owner pays higher wages and thus gets to hire better quality employees and give them good incentive to work hard. Good employees working hard will improve your product/service and thus customers won't mind paying a little more for higher quality.

This is why every restaurant is not McDonald's.

[Dan T.]

One more point about minimum wage: why do we necessarily assume that unemployment rising is a bad thing? Obviously you don't want it to got to high but you don't want it to go to low, either, because then you've got a labor shortage. So there's got to be an ideal unemployment rate but I guess nobody's in agreement as to what that rate is.

So perhaps in this context the minimum wage is a tool to raise unemployment if it needs to be increased.

[Timon19]

That's an interesting statement coming from someone (I'm just guessing here) who identifies himself with the party of Clinton, a party that rang out in hosannas for having a President who oversaw the sinking of unemployment below the rate that was commonly accepted as being the "natural rate" of unemployment (the same one that claimed at one point to have "ended the business cycle" - the one that allows for slow periods of economic activity [read: recession] betwixt expansions).

[fyodor]

This is why every restaurant is not McDonald's.

Well of course, but at the same time, McDonald's makes a good profit, your preaching about paying more to attract higher quality employees notwithstanding.

Or put another way, true not every restaurant is McDonald's, but some are, and they can choose the best hiring policies for themselves without your help, thank you very much!

One more point about minimum wage: why do we necessarily assume that unemployment rising is a bad thing?

Ugh. So this is what it's come to! Unemployment is not merely an abstract concept! It means there are people who WANT to work but who cannot find it! That's why restrictive, coercive policies that increase it are bad! If you don't find that axiomatic, I don't know what to say to you...

Maybe joe can explain it to this guy? Or maybe I should listen to the folks who call this guy a troll? This can't be serious, can it?

[Cab]

Dan, if there is a labor shortage as a result of not having any of that ideal unemployment you are talking about, the minimun wage rate would go up on its own.

[P Brooks]

"This is why every restaurant is not McDonald's."

That is correct, Dan; some businesses differentiate themselves, and profit thereby. They choose, on their own initiative, to do so.

You changed the subject. Are you now advocating that the government send everybody to business school?

----

"...pays higher wages and thus gets to hire better quality employees...."

This is a faulty assumption. The business owner is required by government diktat to pay higher wages, for no demonstrably correlated qualitative change.

[Dan T.]

Ugh. So this is what it's come to! Unemployment is not merely an abstract concept! It means there are people who WANT to work but who cannot find it! That's why restrictive, coercive policies that increase it are bad! If you don't find that axiomatic, I don't know what to say to you...

But if there were no unemployment, there would be businesses that want to hire people but can't find anybody.

And keep in mind that the unemployed are not a set group of people who permanently can't find work. The unemployed 4% today are going to be mostly different people from the unemployed of August.

Maybe joe can explain it to this guy? Or maybe I should listen to the folks who call this guy a troll? This can't be serious, can it?

It's counterintuitive, yes, and from an individual standpoint it sucks to be unemployed. But a healthy economy requires some job turnover as workers move from less successful businesses to more successful ones, (often with a period of unemployment between the two) etc.

[Dan T.]

That is correct, Dan; some businesses differentiate themselves, and profit thereby. They choose, on their own initiative, to do so.

You changed the subject. Are you now advocating that the government send everybody to business school?

You're correct, I was getting off subject with that one.

[joe]

It makes people like Joe and Dan T feel good. Fuck it, who cares what a single source in a single anecdote asserts.

There, John, I fixed that for you.

[Dan T.]

Dan, if there is a labor shortage as a result of not having any of that ideal unemployment you are talking about, the minimun wage rate would go up on its own.

Perhaps. I don't know exactly what all the effects of a severe labor shortage would be, however. It seems like business expansion would grind to a halt as there'd be no way to hire anybody except to raid other companies.

I guess America gets around this problem by importing labor from Mexico?

[Eric]

Dan T. from WABAC:

"The problem is that people without in-demand skills still need money to live on. The market, to be blunt, doesn't care about this."

You couldn't be more wrong about this point. I have virtually no marketable skills and I've never found myself unemployed by choice for more than six months. And that was when I was 17. At my current job I report to three people who haven't read a book since they graduated from high school.

People with no specific training or education are probably never going to make it to CEO, but they can go much further than you'd imagine in a number of companies.

The only thing they really need to worry about is when minmum wage laws constrict the payroll budget and keep them from getting a toe in the door in the first place.

[John]

It is not the single anecdote it is the truth Joe. How the hell are you supposed to get a job when you have no marketable skills and no work history. This includes teenagers and a lot of adults. What about people who have just gotten out of prison. You think people are dying to hire them? No. That is who takes these jobs, people who can't get jobs anywhere else. Low paying jobs enable people to get work experience and job skills to move up the economic ladder. When you raise the minimum wage you make it harder for the people who need jobs the most to get them. You don't help anyone. The people who manage to keep their jobs despite the raises, just work fewer hours and make the same amount of money. Meanwhile, it becomes more profitable to invest in capital rather than labor, the price of goods and services provided by low wage jobs go up, lowering demand and lowering employment. Why are liberals so congentially stupid about this? It is basic supply and demmand economics. If you want to help low wage workers, write them a fucking check and put them on welfare, but don't pretend that employers are going to pull money that isn't there out their asses to give magically hirer pay rates that exceed demand and productivity.

[John]

"I guess America gets around this problem by importing labor from Mexico?"

To a large degree yes, see Rove, Karl with is "I don't want my son cleaning hotel rooms" comment. Fucking asshole.

[joe]

"Why are liberals so congentially stupid about this? It is basic supply and demmand economics."

Boo-yah!

John, don't you ever bother to try to find evidence for what you argue? "You must not bee verry smart" seems to be all you ever have to back up your assertions.

"It's the truth." Oh, ok, if you say so, JOHN.

[Dan T.]

You couldn't be more wrong about this point. I have virtually no marketable skills and I've never found myself unemployed by choice for more than six months.

I'd say that if you've been employed, then you do have marketable skills. Assuming they don't just pay you to not do anything.

[John]

There is the evidence Joe. Right in front of you at the top of the thread. Further, do you deny the basic laws of economics, that wages in the long term will equal productivity? Is there a way to suspend that? If wages in the long run equal productivity, that means that if you set a floor wage, all employees who do not produce enough to meet that wage will not have a job. What is so hard to understand about that?

[Cab]

Dan, you could work for the AP. I can see it now...

Conservative policies cause zero unemployment, hurt ideal unemployment levels. Business expansion to grind to a halt. Expect corporate raids and an invasion of immigrants. Women and minorities hardest hit.

[Dan T.]

If wages in the long run equal productivity, that means that if you set a floor wage, all employees who do not produce enough to meet that wage will not have a job. What is so hard to understand about that?

It's easily understood. The question is, is this necessarily a bad thing? It may actually push people into jobs where they can be more productive.

[John]

"It's easily understood. The question is, is this necessarily a bad thing? It may actually push people into jobs where they can be more productive."

It is a terrible thing. If those people could get jobs where they were more productive they would. Perhaps there are some people out there who are working bad minimum wage jobs who would go find better ones if only they were laid off, but I am sure that number is small and it is a pretty crazy way to base policy.

Again, if you want to help the poor, write them a check. Don't raise wages and expect their employers to magically produce money that is just not there.

[fyodor]

But if there were no unemployment, there would be businesses that want to hire people but can't find anybody.

Hate to break it to you, but people can change jobs without being fired.

But a healthy economy requires some job turnover as workers move from less successful businesses to more successful ones, (often with a period of unemployment between the two) etc.

Oh gawd. Sure, a healthy economy includes such things. But acknowledging that is DIFFERENT from FORCING unemployment on people by making it illegal to hire them at what they're worth!

"It's the truth." Oh, ok, if you say so, JOHN.

joe, if you can divert yourself from your pissing match with John for a moment, I'd like to make the point that I learned economics in college -- from professors. The notion that supply and demand curves relate to labor markets just as they do to any other market is not merely some self-serving libertoid myth. That some economists think the "little" harm it does is worth it for the good it does for its beneficiaries is their own value judgement. That it causes some degree of unemployment is pretty much common sense. But whatever, the real world doesn't always have absolute proof and I'm sure you'll go on believing what you do and we'll go on believing what I say confidently is common sense.

[Dan T.]

It is a terrible thing. If those people could get jobs where they were more productive they would.

Not necessarily. I don't think anybody claims that the market is so perfect that everybody is working at their optimal job for their skill set. Rather, the fact that people often leave one job for a better paying one indicates that many of us are working at less than full potential.

Perhaps there are some people out there who are working bad minimum wage jobs who would go find better ones if only they were laid off, but I am sure that number is small and it is a pretty crazy way to base policy.

I don't know, the US economy has not faired badly during the minimum wage era. In most ways it's probably better than it was prior to the MW.

Again, if you want to help the poor, write them a check. Don't raise wages and expect their employers to magically produce money that is just not there.

Who wants anybody to magically produce money? They should raise their prices or cut other expenses or settle for less profit.

[Bob]

Dan T said --

"Who wants anybody to magically produce money? They should raise their prices or cut other expenses or settle for less profit."

Right.. So when the Walmarts, McDonalds, etc. of the world raise their prices, doesn't that in turn directly impact the very same poor workers who tend to frequent those places?

There's a great deal of economic study that deals with how much of the minimum wage increase actually cycles right back into the "bottom end" employers without benefitting the workers all that much.

[.]

From the article:

"Companies maintain the new wage was raised to $6.75 per hour from $5.15 per hour "

Minimum wage laws are stupid enough, but this kind of implementation of them only makes the situation worse. By forcing a 30% increase in labor cost on certain businesses, you are essentially telling them to cut some workers hours because those business can't make a 30% revenue increase appear in one year.

And this only adds to the "corporate chain store"-ification of the country because the businesses that can absorb a 30% increase in labor cost are those large enough to fund capital projects designed to reduce labor costs. Wal-Mart didn't get to their size because of the gazillion low-wage employees they have, they got to that size because they use technology to reduce the number of low-wage employees to the point that adding some high-wage technology workers and depreciable machines was an overall lower cost than having such a massive number of low-wage worker hours on the payroll.

[Russ 2000]

Who wants anybody to magically produce money? They should raise their prices

LOL!!!

[Mike Laursen]

minimum wage is something of an agreement between the people being willing to pay a little more for stuff in exchange for workers earning a little more than what they're worth.

So, the lowest-paid workers make a little more, but they have to pay a little more for stuff. Are you sure the minimum wage is really doing them a favor?

[Jobriath]

"Whoever gives his labor for money sells himself and puts himself in the rank of slaves." -Cicero

[Francisco Torres]

So a business owner pays his employees the lowest amount he can legally get away with [sic] and then he wonders why turnover is high and it's costing him in the long run to keep training new workers?

"Legally" get away with? Such language - the wage is in function of the productivity of the person and not what the employer can "legally get away" with. Some jobs have a high turnover rate regardless of the marginal increase in wage level. The high turnover rate is compensated by the lower wage level that the employer was willing to pay, making it attractive for both the employer and the employee (who receives job training while working). The fact that this wage is increased artificially by sentimentalists means that the employer can now ILL-AFFORD this turnover, making it necessary for him to favour more stable workers, which he or she will not find in the just-out-of-high-school crowd.

Result? Instant UNEMPLOYMENT.

[Francisco Torres]

They should raise their prices or cut other expenses or settle for less profit.

Raising the prices would nullify any increase in the MW. Cutting expenses would simply mean placing MORE orders to overseas or Chinese companies instead of local. And settling for less profit would make investors mad.

A person with at least a modicum of knowledge on basic economics (not Keynesian or Neoclassical) would not have entertained any of the above as alternatives to a minimum wage.

[Jobriath]

F.Torres:
"And settling for less profit would make investors mad."

Fuck the investors.

[Lurker Kurt]

Isn't the minimum wage increase inherently inflationary?

If the government arbitrarily increases the price of a good, unskilled labor, won't businesses reaction to this price increase be to decrease the amount of this good they purchase and/or raise their prices?

And if business raise their prices, won't this have a ripple effect throughout the economy causing other businesses to raise their prices, thereby negating the purchasing power increase of minimum wage recipiants?

[Jobriath]

Why is it only the wages of the unskilled/bottom-of-the-barrel employees that are considered in this equation?

"Raise in minumun wages? Oh no! We'll have to raise prices on everything! The economy will implode! The sky is falling!"

What about the astromically high salaries of some executives and other higher-ups? Doesn't that factor in the profit equation?

[Jobriath]

And how about that these people will now have greater disposible income and so buy more plasma screen TVs and iPods, thereby contributing to economic growth?

Unless you feel poverty and deprivation should be the just result of these lazy, willfully ignorant people who do back-breaking work -work which is absolutely ensential to any industry and without which it could not function- and don't take enough personal responsibility to educate themselves and just get a better fuckin' job?

[thedifferentphil]

The above super short-term evidence aside, minimum wage increases have typically had very weak impacts on unemployment, and only time will tell if this one has any serious impact. An interesting point was brought up by Steven Landsburg over at Slate Magazine a few years ago, which is that empirical studies tend to overstate the negative impacts on unemployment. However, the true impact is that the employers of low end wage workers bear the majority of the cost of pumping up the minimum wage incomes. Similar to H&R John, he argues that it is better to just bump up the Earned Income Tax Credit, so that all of society subsidizes these workers, rather than just the low skilled labor businesses.

[Mike Laursen]

Jobriath: Fuck the investors.

I assume you're still young and haven't gotten to the stage in your life when you have extra income to invest. It's likely you'll feel differently when you are an investor.

Why is it only the wages of the unskilled/bottom-of-the-barrel employees that are considered in this equation?

Exactly. Why are only wages considered? Shouldn't it also considered what prices those unskilled employees will have to pay for goods and services? All things being equal, it's in their interest to have lower prices.

What about the astromically high salaries of some executives and other higher-ups?

Good point. The one difference to consider is that there isn't a law enforcing a minimum wage for executives. Some executives are so talented at management, they are worth it. Some are not. Utlimately, the fucking investors in a company get to use their own judgement about how much its executives should be paid.

And how about that these people will now have greater disposible income and so buy more plasma screen TVs and iPods, thereby contributing to economic growth?

I'm not sure minimum wage employees would be spending money on those particular items rather than more basic needs. Perhaps their extra income would have gone to someone else who would have bought plasma TVs and iPods. Who knows? This type of reasoning is highly conjectural.

Unless you feel poverty and deprivation should be ...

Poverty is a serious problem. But what if minimum wage laws don't really help fight poverty? Do you care more about doing something to show how much you care about fighting poverty, or doing something that actually will fight poverty?

[Francisco Torres]

Why is it only the wages of the unskilled/bottom-of-the-barrel employees that are considered in this equation?

Because those are the ones that suffer the most because of an artificial increase in their cost (i.e. minimum wage)

"Raise in minumun wages? Oh no! We'll have to raise prices on everything! The economy will implode! The sky is falling!"

Most employers simply dismiss their suddendly costly employees. So the net effect will not be a price increase (since customers react negatively to that anyway) but simply more unemployment.

What about the astromically high salaries of some executives and other higher-ups? Doesn't that factor in the profit equation?

Of course it does - people receiving the "astronomical" (your subjective valuation, not the company's) salaries DELIVER a higher utility to the company. If it weren't as such, the salary levels for top administrators would be much less. The salary is in fuction of the productivity of the person (the marginal utility it can deliver to the company)

And how about that these people will now have greater disposible income and so buy more plasma screen TVs and iPods, thereby contributing to economic growth?

Common fallacy - if a rise in minimum wage lead to greater prosperity and more disposable income, why then is not minimum wage raised towards the high 100s, or the 1000s?

The reallity is that a wage is just a price. Artificially raise a price on something, and the net result will be a shortage of that thing - in this case, a shortage of jobs.

Fuck the investors.

You must think investors are people that look like Scrooge McDuck, dunking themselves in money. An investor can be any person, and investors are SORELY, SORELY needed to keep the economy going. Without investors there is no capital, no factories, no products - and no economy. You should think about this before saying anything.