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Benifits and Costs of lowering the minimum wage to assist teenage workersSaturday, September 19, 2009
Just drafted this short analysis for my Economics class this evening. Interesting data... ------------------ A proposal to lower the minimum wage for any group (in this example we focus on teenagers) would certainly be unconstitutional. Regardless of race, ethnic origin or age all workers in the labor force are entitled to be treated equally. If we ignore this key roadblock, the lowering of minimum wage for any group diminishes the total size of that group’s workforce as the quantity supply diminishes with a price per worker falloff. If the wage was already above the standard market price, this in turn would push the current quantity supplied/demanded toward equilibrium and provide healing to that group’s market. However, according to some groups there is insufficient evidence that the demand for teenage workers justifies the lowering of minimum wage. Many of the reporting processes we rely upon such as the Current Population Survey (CPS) supplied by the U.S. Bureau of Census have under and over estimates as independent studies show the surveys are not always verified (Mellow & Sider, 1983). Because of this, any adjustments to the minimum wage for this group could risk the stability of a market which might already be in equilibrium. Unemployment among teens The 2009 August Seasonal CPS report for Employed and unemployed full- and part-time workers generated by the U.S. Bureau of Census indicates that out of a study group of 4,905 teens working or looking for work surveyed between the ages of 16 and 19, an average of 30% are unemployed. This number of unemployed is a substantial increase in the approximate 21% unemployment rate for August 2008 and the 15.7% rate for 2007. In contrast, the same report details that for the national labor market (teens and adults) an average of 8% workers are unemployed or looking for work, 6.7% in 2007, and 5.6% in 2006. Given this data, the unemployment rate for teenagers has increase at a rate almost double that of the national rate. This shows a dangerous trend, establishing that the market for individuals between ages 16 and 19 has become saturated and is forcing a would-be labor pool to wait on the sidelines till change in their labor market occurs. Supply and Demand analysis According to the U.S. Bureau of Census, 91% of teenage workers are at or below prevailing Federal minimum wage. Using supply and demand, we can see that there was a 14.3 million surplus of minimum wage workers in 2008. This is represented by the attached chart. Taking these two items into consideration, in order to affect a return to market equilibrium the federal government would need to cut minimum wage by a range of [$1, $1.25] returning it to $4.60 an hour. Based off the law of supply and demand, this would decrease the surplus of workers and increase the overall quantity demand by employers for minimum wage workers. As the surplus is decreased, the total number of unemployed teenagers would also decrease.  Summary Given this information, the federal government faces a difficult challenge. The surplus of teenage workers is rising at an exponential rate. Minimum wage has also continued an upward trend which incurs a national surplus of workers as well. However, the total percentage of teenage workers within the labor market is roughly 2%. While applying a cut to the national minimum wage would ultimately benefit teenagers, it has a high risk of disastrous effects on the rest of the minimum wage labor pool. The challenge before the current administration is enormous! Should the government apply a different standard for the U.S workforce within the 16 to 19 age bracket, thus going against the constitution? Is this acceptable simply to return ~2% of the labor pool back to the labor market? How important are the roughly 452 thousand teenagers who cannot find a job in the current labor market? These are questions left to a better economist than the rookie writing this analysis. References U.S Department of Labor, Bureau of Labor Statistics. (2008-2009). Employed and unemployed full- and part-time workers by sex and age, seasonally adjusted Washington, DC: Government Printing Office. Retrieved from http://www.bls.gov/web/cpseea6.pdf U.S Department of Labor, Bureau of Labor Statistics. (2008). Employment status of the civilian noninstitutional population 16 years and over by sex, 1970 to date Washington, DC: Government Printing Office. Retrieved from http://www.bls.gov/cps/cpsaat2.pdf Mellow, W., & Sider H. (1983). Accuracy of response in labor market surveys: evidence and implications. Journal of Labor Economics, 1(4), 331-344. posted by Travin # 11:47 PM 0 Comments Comments: Post a Comment << Home |
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