Monday, July 12, 2010

Summer jobs in high school

I remember being pretty happy with getting any amount of money per hour when I got my first job at 15. It seems like more people would be employed if it was worth hiring them. The rise of the minimum wage means that the level of work that can be done must be greater which means that people with less skills (e.g. teens) aren't worth paying since they can't contribute an equivalent amount of value to a business as the business is forced to pay them for their work. This results in essentially underemployment mandated by the inflated cost of hiring due to a high minimum wage.

Teen employment, poverty, and the minimum wage: Evidence from Canada

Anindya Sen, Kathleen Rybczynski & Corey Van De Waal
Labour Economics, forthcoming

In May 2007, the U.S. Congress enacted legislation, which increased the Federal minimum hourly wage from $5.15 to $7.25, over a two year time period. This increase to the minimum wage was the first in nearly a decade and was approved with the objective of alleviating poverty among low income households. However, a higher minimum wage may result in more unemployment and poverty. We exploit time-series variation in minimum wages set by Canadian provinces between 1981 and 2004. OLS and IV results suggest that a 10% increase in the minimum wage is significantly correlated with a 3% - 5% drop in teen employment. Further, a 10% rise in the minimum wage is also significantly associated with a 4% - 6% increase in the percentage of families living under Low Income Cut Offs (LICOs). Difference-in-difference estimates from the 1993, 1995, and 1998 waves of the Survey of Consumer Finances (SCF) support these findings as they suggest that income earned by teens constitutes a non-trivial portion of household income for families beneath Low Income Cut Offs. Therefore, a higher minimum wage may paradoxically result in a significant negative shock to household income among low-income families.

No comments: