Economy / Education / Labor Force / Politics / U.S. Domestic Policy

Will the Raise the Wage Act Work?

Introduction

In an effort to “give roughly 40 million Americans a raise,” the House Education and Labor Committee introduced The Raise the Wage Act in early 2019 (H.R. 582); this bill would increase the federal minimum wage from $7.25 an hour to $15 an hour by 2024, index future wage increases, and eliminate subminimum wages for tipped, disabled, and youth (aged 16 to 24) workers. Employees in tipped-service occupations and small business owners largely oppose H.R. 582, but–if enacted–this bill could also undermine the demographics’ educational and employment opportunities and increase the likelihood of crime.

Current Youth Employment Trends

As employees with less experience, skill, and education, youth tend to face more difficulties when positioning themselves in the labor market; and for those who do find employment, jobs are typically minimum wage positions. In 2017, 48.8 percent of hourly workers paid the federal minimum wage or less were under the age of 25. Among teenagers (16- to 19- years old), about eight percent earned the minimum wage or less (compared to approximately one percent of workers aged 25 and older).

As such, the youth demographic is highly exposed to disemployment effects, with minimum wage increases serving as a catalyst for this disemployment. In 2007, Kalenkoski and Lacombe found that a 10 percent increase in the effective minimum wage is associated with a 3.2 percent decrease in youth employment.[1],[2] A 2004 Neumark and Washer study concluded that this disemployment trend is echoed in OECD countries across the world.[3] Inadvertent labor outcomes for low-income youth, however, is detrimental to education and employment opportunities and may predispose the demographic to crime.

Risks for Low-Income Youth: Societal Disengagement[4]

Minimum wage spikes are associated with increasing the prevalence of “disengaged youths,” those aged 16 to 25 that are involved in neither school nor work, and low-skilled youth are particularly at risk for this societal disengagement following a minimum wage boost. Today, at least 17 percent of youth aged 16-25 are already disengaged from school and the labor market, and these 6.7 million individuals are disproportionately male and from minority groups.[5] When wage spikes occur, these idle individuals are 7.3 percent more likely to remain in this state of inactivity. Those who are in school, however, see the raising wage levels as an advantageous solution to their family’s low-income position, which results in an increase of disengagement by 2.6 percentage points. Rather than a “livable” wage, these disemployment effects leave more individuals disengaged from society, which is concerning for future engagement opportunities.

There exists a strong correlation between educational attainment and employment as well,[6] so those who do drop out of school to acquire a minimum wage position may have trouble finding employment opportunities down the road. When youth drop out of educational opportunities, their career opportunities down the line dwindle: the employment rate for those with a high school diploma is 82 percent versus 66 percent for those with GEDs or without high school diplomas; furthermore, the advantaged population tends to be more satisfied with their job quality since 38 percent of those from disadvantaged backgrounds have high quality jobs as compared to 48 percent of those from non disadvantaged backgrounds.[7] So while many argue for a “living wage,” the adverse market affects undermine the career advancement and educational opportunities for the very individuals who need the income boost the most.

On a macroeconomic level, disengaged youth are also a large financial burden for the American public. For all disengaged youth, many of whom stop participating in the work force even before age 19, the aggregate taxpayer burden is $1.56 trillion and there exists a social cost of $4.75 trillion.[8] United States tax dollars would be better spent providing a sustainable stepping-stone for at-risk youth (see “A Different Approach: Apprenticeships” below).

Increased Crime Rates

Another externality of an increased federal minimum wages is increased crime rates for youth. Not only does imprisonment decrease time that could be spent accumulating wages, but a criminal record also serves as a deterrent for future employers and lowers future job quality.[9]


In 2016, President Obama’s Council of Economic Advisers claimed that raising the federal minimum wage to $12 an hour, up from $7.25 an hour, “could prevent as many as half a million crimes annually as fewer people would be forced to turn to illegal activity to make ends meet.” This research, however, does not fully consider the adverse labor demand effects of a wage increase: minimum wage-induced job loss or hour reductions creates a stronger economic incentive for property crime amongst employed and unemployed individuals affected by wage changes, according to Beauchamp and Chan’s analysis of 1997-2010 minimum wage trends (2013). Amongst youth, Beauchamp and Chan found that crime increased by “1.9 percentage points among 14- to 30-year-olds as the minimum wage increases, with effects being even larger among teenagers.”[10] A recent March 2019 study by Fone et al.’s further concludes that raising the minimum wage by one percent increases property crime arrests for youth aged 16-to-24 by .2 percent; meaning that a minimum wage increase of 100 percent could raise arrests by 20 percent.[11] As criminal activity rises, it adds to the aforementioned macroeconomic burden that taxpayers now have to face; Fone et al. believe the change could generate criminal externality costs of nearly $2.4 billion. Ensuring opportunities for youth to be engaged in society can create an environment that deters individuals from this criminal activity.

A Different Approach: Apprenticeships

Instead of increasing the federal minimum wage–which also applies to federal workers thereby affecting federal and state budgets–the government spending should be directed at programs that encourage youth employment, specifically apprenticeships or Career and Technical Education (CTE) programs in high schools. Apprenticeship programs in high schools not only serve to keep students in school but give them applicable skills to use after graduation as an increase in successful apprenticeship programs has been linked to improved academic performance, decreased dropout rates, and increased rates of GED and vocational certificates. Individuals that participate in these programs in high school also have an increased likelihood of entering college.[12]

One successful CTE program is the Summer Youth Employment Program in New York City. An analysis of 36,550 of their students most at risk of school failure showed increased attendance in the next school year and higher scores for taking and passing the Regent Exam in math and English.[13] CTE programs that are relationship-focused also increase job quality scores at age 29 by 0.18 points, which reflects an effect that persists even 10 years after high school–“a striking finding given that the effects of training programs are often found to fade over time.”[14]

As a result of increased research of apprenticeship programs, the Department of Labor (DOL) and Trump Administration has called for an expansion of programs across the United States. In 2017, the DOL launched ApprenticeshipUSA to highlight schools that created programs and educate on how to become an apprentice and start a program. With partisan support, a push for early labor market exposure could help low-income students gain educational, workplace, and life skills and keep youth out of jail.

Conclusion

While many argue for a “living wage,” the adverse market affects undermine the career advancement and educational opportunities for the very individuals who need the income boost the most. When implementing solutions to poverty, the United States’ government must examine these long-term ramifications, and instead provide sustainable, individual-focused solutions to the issues. Too much today, policy-makers focus on the political benefit–how it will affect Presidential, Congressional, etc. elections– behind bills rather than using their positions to educate constituents on the best solutions. Raising the minimum wage does not guarantee that low-income individuals will succeed, and the Raise the Wage Act should not serve as a ploy for political career advancement. When aiding their constituents, policymakers must analyze policy, not politics.

Works Cited

Beauchamp, Andrew, and Stacey Chan. The Minimum Wage and Crime. NBER, 2013, The Minimum Wage and Crime.

Belfield, Clive, et al. The Economic Value of Opportunity Youth. ERIC, 2012, pp. 1–49, The Economic Value of Opportunity Youth.

Kalenkoski, Charlene & Lacombe, Donald. (2007). Effects of Minimum Wages on Youth Employment: The Importance of Accounting for Spatial Correlation. Journal of Labor Research. 29. 303-317. 10.1007/s12122-007-9038-6.

Ma, Jennifer, et al. Education Pays 2016: The Benefits of Higher Education for Individuals and Society. Trends in Higher Education Series. The College Board, 2016, Education Pays 2016: The Benefits of Higher Education for Individuals and Society. Trends in Higher Education Series.

Neumark, David and William Wascher. “Minimum Wages, Labor Market Institutions, And Youth Employment: A Cross-National Analysis,” Industrial and Labor Relations Review, 2004, v57(2,Jan), 223-248.

Ross, Martha, et al. Pathways to High-Quality Jobs for Youth Adults. Brookings, 2018, https://www.brookings.edu/wp-content/uploads/2018/10/Brookings_Child-Trends_Pathways-for-High-Quality-Jobs-FINAL.pdf

The Urban Alliance. Youth Employment Matters. The Urban Alliance, 2014, Youth Employment Matters.


[1]Kalenkoski, Charlene & Lacombe, Donald. (2007). Effects of Minimum Wages on Youth Employment: The

Importance of Accounting for Spatial Correlation. Journal of Labor Research. 29. 303-317. 10.1007/s12122-007-9038-6.

[2] A 2019 Minimum Wage study by AAF found that disemployment occurs for all age groups when wages rise.

[3] Neumark, David and William Wascher. “Minimum Wages, Labor Market Institutions, And Youth Employment: A

Cross-National Analysis,” Industrial and Labor Relations Review, 2004, v57(2,Jan), 223-248.

[4] Disengaged Youth are those aged 16-25 involved in neither school nor work

[5] Belfield, Clive, et al. The Economic Value of Opportunity Youth. ERIC, 2012, pp. 1–49, The Economic Value of Opportunity Youth.

[6] Ma, Jennifer, et al. Education Pays 2016: The Benefits of Higher Education for Individuals and Society. Trends in Higher Education Series. The College Board, 2016, Education Pays 2016: The Benefits of Higher Education for Individuals and Society. Trends in Higher Education Series.

[7] Ross, Martha, et al. Pathways to High-Quality Jobs for Youth Adults. Brookings, 2018, https://www.brookings.edu/wp-content/uploads/2018/10/Brookings_Child-Trends_Pathways-for-High-Quality-Jobs-FINAL.pdf

[8] Belfield, Clive, et al. The Economic Value of Opportunity Youth.

[9] “Job quality” as measured by wages, benefits, hours, and job satisfaction

[10] Beauchamp, Andrew, and Stacey Chan. The Minimum Wage and Crime. NBER, 2013, The Minimum Wage and Crime.

[11] The raise from $7.25 to $15/hr is a 107 percent increase

[12] The Urban Alliance. Youth Employment Matters. The Urban Alliance, 2014, Youth Employment Matters.

[13] The Urban Alliance. Youth Employment Matters.

[14] Ross, Martha, et al. Pathways to High-Quality Jobs for Youth Adults. Brookings

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