Does an Increase in the Minimum Wage Decrease Teen Employment?

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Yes, according to previous research and according to a new working paper out of GMU’s Mercatus Center.1 The authors report,

First, we sought to understand the sources of the decline in teen employment that began around 2000—in particular, the decline in employment among those age 16–17—as well as, more generally, changes in teen employment and school enrollment behavior. Second, we wanted to explore the implications of these changes for human capital, given that the decline in employment consisted of fewer teens in school and employed, and more teens in school exclusively, suggesting a greater focus on schooling. We have considered three explanatory factors: (1) a rising minimum wage that could reduce employment opportunities for teens and potentially also increase the value of investing in schooling; (2) rising returns to schooling; and (3) increasing competition from immigrants that, like the minimum wage, could reduce employment opportunities but also raise the returns to human capital investment. 

With respect to the first question, we find some evidence of the expected effects of all three explanatory factors on teen employment and school enrollment—and in particular for those age 16–17. However, in terms of explaining changes in the behavior of teens age 16–17 since 2000, the role of the minimum wage is predominant. Increases in the returns to schooling appear to have played almost no role, and immigrant competition a minor role. In contrast, our simulation results suggest that minimum wages explain about a quarter of the shift, since 2000, from being simultaneously employed and enrolled in school to being exclusively enrolled in school.

Turning to the second question, our examination of the longer-term effects of these three factors uncovers no evidence that higher minimum wages, which underlie teens shifting from combining work and schooling to being in school exclusively, led to greater human capital investment. If anything, the evidence is in the other direction. Thus, it is more likely that the principal effect of higher minimum wages in the 2000s, in terms of human capital, was to reduce employment opportunities that could enhance labor market experience. Further, we find no evidence of net-positive human capital effects of rising returns to schooling or increased immigration in this period, even though these latter two factors—more so immigration—played at least a minor role in the changes in teen employment and school enrollment.

Based on this evidence, then, it appears that the changes in teen labor market and schooling behavior since 2000—stemming in part from adverse effects of minimum wages on employment opportunities, and to a lesser extent from immigration—did not reflect greater human capital investment that would raise future earnings. It is not clear that immigration delivered any other short-term benefits to teens. In contrast, some teens surely benefited directly in the short run from higher minimum wages. But there appear to have been either no effects or adverse effects on longer-run earnings for those exposed to these higher minimum wages as teenagers (pgs. 47-48).