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April 9, 2012

Scratching the Surface: Youth Unemployment and Policy

By Cindy Ivanac-Lillig

A couple of weeks ago, my friend sent a short and sarcastic email that has haunted me. It said, “Funny that Switzerland's minimum wage is $15 per hour, and the country is #1 in global competitiveness with low youth unemployment.”

Attached to the email was an article arguing that raising the minimum wage will raise the unemployment rate among unskilled workers (especially youth). This rather well-known theory basically states that the more expensive unskilled workers become, the less likely it will be that businesses will want to hire them.

After finishing the article, I had the urge to look-up the different minimum wages by state and compare them with the youth unemployment rates by state. Unfortunately, the best I could do in terms of visuals was: unemployment (scroll to the bottom of the page) vs. minimum wage. My meager experiment of googling these maps didn’t produce much that was satisfying or definitive. In fact, generally speaking, the northwestern part of the country has higher minimum wages and somewhat lower youth unemployment rates. However, at the risk of sounding too academic, this by itself doesn’t disprove the general theory outlined in the article.

I finally found an interesting piece from the Federal Reserve from 2003. It discussed the factors that mitigate or exacerbate this general theory of minimum wage (price floor). As it turns out, the relationship between unemployment and minimum wage is greatly affected by labor laws, the degree to which the government is proactive in helping youth find jobs, and the manner in which the minimum wage is negotiated. As usual, you ask an economic question and the answer is rarely straightforward.

There are many dynamics at play in regards to youth unemployment. If you are interested, check out a 2011 paper from the Fed detailing the deterioration of youth job opportunities entitled, Polarization, immigration, education: What’s behind the dramatic decline in youth employment? The paper points out that the employment rate among 16-17 year-olds is currently at 15%, which is the lowest level ever recorded by the BLS. Also, check out a recent article from the Economist that outlined the long-term effects of youth unemployment. As many of my readers work with young adults, numbers like this may not be news. But all of this has me wondering if youth unemployment is more expensive to society in the long-run than it may seem on paper?

What do you think?

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Posted by Cindy at 10:35 PM | Comments (12) | TrackBack