The subminimum wage: less than meets the eye
With summer upon us, employment for teen-agers has once again become a major social and political concern. In response to a youth unemployment rate of 23 percent, more than double the figure for the entire labor force, President Reagan has proposed a subminimum wage for younger workers of $2.50 per hour, 25 percent below the current legal minimum. While the enactment of this proposal could increase the employment of some younger people (administration spokesmen acknowledge the lack of hard data), it would hurt adult workers and violate the principle of equal pay for equal work.
The minimum wage was originally established under the Fair Labor Standards Act of 1938. Through a series of amendments, it has reached $3.35 per hour, a figure which has been constant since January 1981.
Subminimum wage proposals are not new. What is novel in the President's recommendation is that it would be applicable only from May through September and would extend to workers up to age 21. Previous subminimum wage plans were not limited to the summer months and did not extend beyond age 18 or 19.
A basic question for consideration in evaluating a subminimum wage is its impact on adult employment. The President is aware of this potential problem and in a San Francisco address stated that he will ''absolutely prohibit businesses from displacing current workers by hiring young people at a lower wage.''
Notwithstanding the President's guarantee, the incentive of a 25 percent salary reduction will inevitably lead employers to substitute teen-agers for adults. Secretary of Labor Donovan conceded this just a short while before the President's address. Such substitution is especially likely to occur in the unskilled peripheral labor market that includes fast-food chains, restaurants, and grocers. In these businesses, where skill requirements are minimal, substitution would be a relatively easy task and often accomplished simply by delaying hiring until after May 1. Resort areas which depend on the summer months for all or a substantial part of their income could also be expected to replace adult employees with lower paid teen-agers.
Loss of employment by adults because of substitution, an especially serious concern for minority group members who are disproportionately employed at the minimum wage, would create worse problems than does high youth unemployment This is the case since more than half of all workers employed at the minimum wage are age 25 or over; more than one-quarter of them are heads of households. Ironically, with our civilian unemployment rate at 10 percent, the sub-minimum wage would result in some adult workers losing their jobs and, along with their families, becoming eligible for public assistance.
In its 1981 report, the Minimum Wage Study Commission, a body created by the US Congress, concluded that a subminimum wage would represent a departure from the ''principle of equal pay for equal work.'' For example, a 20-year-old with the same responsibilities in a fast-food restaurant as a 22-year-old may be paid 25 percent less, even if he is more efficient simply because he is younger. This is contrary to the entire trend toward equal pay for equal work.
In effect, we already have a subminimum wage, albeit one whose parents are inflation and the failure to link the minimum wage to changes in the cost of living, not Congress and the President. In January 1981 dollars, the current $3. 35 legal minimum wage is worth approximately $2.85 per hour.
The positive benefits of a subminimum wage proposal are so much less than meets the eye that in the eyes of some beholders it might be more effective to do nothing and deal with youth unemployment by allowing ''natural adjustment'' to take place. This would result from the demographic fact that as teen-agers move into adulthood the number of teen-agers and their percentage of the overall population will decrease.
According to ''Statistical Abstract of the United States, 1980,'' in 1979 there were 33 million Americans age 14-21, 15.1 percent of our population. The US Bureau of the Census projections for the year 1990 indicated that the number of Americans in this age group will decline to little more than 27 million and will represent only 11.2 percent of our population.
A more serious approach for the President and Congress to take, however, would be to address the teen-age unemployment problem directly by initiating programs and incentives to create a pool of jobs. Government subsidies, in terms of tax credits or direct expenditures, are relatively simple to administer and could be targeted to all inexperienced or unskilled workers, including youthful ones.