Minimum-wage law adds up to not as many youth jobs
Last year economists Robert H. Meyer and David A. Wise did an econometric study showing that the abolition of the minimum wage would greatly help young men just out of school get jobs.
Mr. Meyer is a staff economist with the President's Council of Economic Advisers, brought in last October by the new council chairman, Martin S. Feldstein, to work on the Reagan administration's labor policy. And President Reagan in his latest budget has proposed cutting the current minimum wage of $3. 35 an hour to $2.50 in the case of summer jobs for young people up to 22 years old.
These events show the eventual impact of academic research on government policy.
Most people regard the minimum wage as a protection for the untrained worker. Economic research, however, shows that the minimum wage tends to harm youths. It discourages not only the hiring of inexperienced young men or women but also their training.
Dr. Feldstein himself, writing in 1973, said: ''. . . the minimum-wage law has an unambiguously harmful effect on some young workers. Even if an individual were willing to 'buy' on-the-job training by taking a very low wage for six months or a year, the minimum-wage law would not permit him to do so. . . . For the disadvantaged, the minimum-wage law may have the ironic effect of lowering lifetime incomes by a very large amount.''
That conclusion is supported by a study by a University of Washington economist, Masanori Hashimoto, in the December issue of the American Economic Review. He writes: ''An effective minimum wage diminishes training in two ways. First, to the extent that the minimum wage results in lost employment, it deprives the disemployed workers of access to training. . . . Second, even those workers who manage to remain employed at wages near the minimum wage may experience a reduction in training. For many young workers lacking in skills and experience, a legal minimum wage is likely to be higher than what they would earn otherwise. As a result, they are particularly susceptible to the adverse training effect of the minimum wage.''
Mr. Hashimoto holds that his research ''strengthens the case for youth differentials in the minimum wage rates.''
The administration, rather than proposing abolition of the minimum wage for youths, has chosen the politically safer route of a reduced minimum.
The Meyer-Wise research was done for the National Bureau of Economic Research , where Dr. Feldstein was president before going to Washington. It shows that the minimum wage boosted unemployment among young men without any offsetting increase in total wages going to these youths.
If there had been no minimum during the 1973-78 period, Messrs. Meyer and Wise estimate, employment among out-of-school men 16 to 24 years old would have been approximately 4 percent higher than it in fact was.
This employment effect is more serious proportionately for the younger men. Among those 16 to 19, employment would have been about 7 percent greater, and among those 20 to 24, 2 percent higher.
The impact of the minimum wage was greatest on black youths. Without it, some 6 percent more of them would have had jobs.
President Reagan commented on the horrendous unemployment rate among black youths Feb. 9. ''Before there was a minimum wage,'' he told television newscasters, ''young, teen-aged blacks had a far lower rate of unemployment than teen-aged whites. And as the minimum wage was put into effect and began to increase, this was reversed.''
Looking at the idea of a lower minimum wage for youths, Messrs. Meyer and Wise say its desirability depends on the goals sought through such action. If a total employment increase is the goal, more could be gained by reducing the minimum for older youths than for younger youths. That's because there are about 10 times as many out-of-school youths aged 20 to 24 as there are aged 16 and 17. Thus if the minimum were totally eliminated, potential employment would increase 2.2 percent for 20 to 24 year olds and 8.7 percent for those 16 and 17. But because of the difference in numbers of youths in the two age brackets, the action would add to the employment roles about 2.5 times as many older youths as younger youths.
Obviously the legislated minimum wage means some youths are paid more than they might otherwise get if labor-market mechanisms prevailed alone. However, Meyer and Wise find that the increased earnings of these youths is offset by the nonemployment and thus zero earnings of others. So, as a whole, earnings of young men are about the same with the minimum legislation as they would be without it.
Another finding of the study is that the minimum wage law has had no identifiable tendency to push even higher those wages that the market has placed above the minimum wage level. Many businessmen have argued to the contrary.
Whether Congress will accept such academic findings, considering the mythology surrounding the minimum wage, remains to be seen.