Page 9
there will be negligible employment losses, if any at all. Assemblyman Alejo has also repeatedly stressed that teenagers are not the only ones who receive minimum wages -- 60% of recipients are at least 26 years old. This means that the minimum wage affects not only teenagers, but also many ordinary working class adults, many of whom are supporting dependents. Altogether, 2.4 million work in minimum wage jobs in California. Minimum wage increases are widely popular if not “a moral imperative” (Senator Bill Monning, D-Carmel). So what is the downside? Minimum wage empirical research hardly ever finds unemployment effects in older age groups. For teenagers in the labor force, however, there does tend to be a significant and measurable aggregate unemployment rate increase as a result of an increase in the minimum wage. Until the early ‘90s, the consensus view held by economists was that a 10% minimum wage increase would lead to declines in teenage employment of between 1% and 2%. This is the benign but misguided effect of the desire to help the poor. It is misguided because those who have jobs and remain employed are made better-off at the expense of those losing jobs. The most affected group is teenagers, with a quarter earning minimum wages only, and most of their jobs are in the leisure and hospitality industry, more specifically in fast food outlets.
“
RAISING THE MINIMUM WAGE BY 25% DURING THE NOT-SO-GREAT RECOVERY MEANS MORE TEENS WILL BE OUT OF WORK.
The consensus view was eroded by the so-called New Minimum Wage Research literature starting in the early ‘90s. Looking at fast food restaurants and event studies, such as a minimum wage increase in one state without a coinciding minimum wage increase in an adjacent state, these researchers found no negative employment effects. One of the principle authors was Alan Krueger, who was the Chief Economist at the U.S. Department of Labor under President Clinton and the former Chairman of President Obama’s Council of Economic Advisers. This research won the hearts and minds of politicians, and federal minimum wages were increased in late 1996, albeit remaining constant for the next 10 years until 2006. Furthermore, given that many of the minimum wage jobs involve repetitive tasks, both for teens and others, we expect to see labor saving technology taking away these positions over time. Considering the recent trends in automation and the coinciding productivity increases, there is particular concern since the proposed hike would reduce teenage employment by 2.5% to 5%. California teenagers have already experienced extremely high unemployment rates. For 2012, the teenage unemployment rate in California stood at 34.6%, the highest state unemployment rate in the nation. Although data for teenage unemployment rates at the MSA level are not available, it is likely that the Inland Empire values are even higher, just as the overall unemployment rate is currently higher in the Inland Empire (10.4%) than statewide (8.9%; both figures are seasonally
INLAND EMPIRE OUTLOOK | 9