Letting employers hire young people at wages below the legal minimum for adults is an idea with a simple, straightforward appeal. Make youth labor cheaper, the argument goes, and employers will hire more youths, thereby solving an important social problem at no government cost. But as hearings this week before the Senate labor subcommittee confirmed, the matter is more complicated than that.
Most young people find jobs without much difficulty. Although there are many more youths than there were a decade ago, they are working at a higher rate than ever. Less than 10 percent of them say they need jobs to support themselves or their families. Unemployment is a serious problem for many minority youths, particularly in inner cities. Unfortunately, reducing youth wages won't cure this situation. A 25 percent reduction in the minimum wage -- the largest currently proposed -- might knock about 3 points off the current 19 percent youth unemployment rate. Most of these new jobs, moreover, would go to better-equipped suburban youth. Some jobs would be taken from low-income adults who now work side by side with young people in sales and services.
The fact is that bargain wage rates cannot induce employers to hire youths who lack the skills and work habits they want. Strong evidence is provided by wage-subsidy pilot projects and by the disappointingly low takeup rate for the Targeted Job Tax Credit. This feature of the current tax law reimburses employers for 50 percent of the wages paid to low-income youths and provides a much more generous subsidy than the proposed sub-minimum.
There is a trickier factor. Lower wages may allow employers to hire more workers. But as supply-side theory teaches us, lower wages reduce incentives for work. This, plus fears about opening the door to a higher adult minimum, may help explain the absence from the sub-minimum hearings of some usually enthusiastic employer groups. Not only have some traditionally low-wages, high-turnover employers recently expressed little interest in expanding this kind of employment; some are reportedly talking instead of raising wages to attract and hold a more qualified and productive work force.
Many of these concerns were reflected in cautious testimony this week by Labor Secretary Ray Donovan. While supporting a youth sub-minimum wage "in comcept," he called for further study of its practical consequences. Correctly, he noted that a strong economy is the biggest factor in improving job prospects for all young workers, and that in dealing with those youths with special difficulties, a broad-based strategy is needed. No simple answers here.