Unemployment among young people way up; Does the minimum wage play a part?

Despite the potential unpopularity of such a proposition, would reducing or eliminating the minimum wage help to reduce unemployment among young people and generate more prosperity overall? It depends on who you ask.

“It’s obviously not the only factor,” Boudreaux said. “But as long as people have contracting rights, if they find that it is worth his or her while to work at a job paying some wage, presumably that is the best use of that person’s time.”

When asked if minimum wage laws negatively affect the unemployment rate, he replied, “Of course.”

Analysts at the Economic Policy Institute, however, point to a recent study on the rising trend in youth unemployment that suggests that there is scant evidence that minimum wage raises contribute to unemployment among young people.

“Since the minimum wage was raised in July, the teen employment rate (the share of people age 16-19 who are employed) fell from 28.9% to 26.2%,” wrote economist Heidi Shierholz in a November 2009 paper. “Could this drop plausibly be attributed to July’s 70 cent increase in the minimum wage? A careful examination of the data finds no evidence to support that conclusion.”

Steven Horwitz, an economist at St. Lawrence University and proponent of eliminating the minimum wage, concedes that price controls don’t always have to result in fewer hires, but government price controls can force companies to cut back elsewhere to make up for the lost revenue. Firms can reduce benefits and working conditions, for instance, or try to squeeze more productivity out of their employees.

While the minimum wage is not the only factor that contributes to widespread unemployment, especially during a recession, Horwitz said it ranks high on his list.

“This is not surprising,” Horwitz said of rising jobless rates. “Certainly minimum wage is the first thing I think of as a possible culprit.”

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