Monday, August 10, 2009

Teen Unemployment

There’s a story in today’s issue of The Wall Street Journal about the high rate of unemployment among teenagers.

The quick reaction is to blame it on the recent minimum wage increase, but that went into effect too recently to make a huge impact. That’s not to say it won’t show up later.

This article from does a good job of examining the issue, but the WSJ article raises a few more questions – particularly as minimum wage relates to competition and price in labor markets. When a wage rate impacts a given market, the employer wants to receive as much as possible in return. What they’re looking for is skills. If an employer can get more skills for the same wage, it’s to their advantage to do so. As the WSJ article points out, given the current state of the larger economy, there are plenty of people with higher skill levels that are competing with teenagers with lesser skills.

One other thing I would offer is an application of income effect. I’m presuming that many Federal jobs programs mandate that wages cannot fall below the Federal minimum. That’s good for those that can get the jobs. But it also means that for a given pool of funds, there’s less labor that can be purchased. Example: A six-million dollar program translates to fewer hours and/or fewer jobs at a wage rate of seven dollars and change per hour than it does at six dollars and change. (I admit I don’t know the details on these programs, but I am ready to be corrected.)

What do you think about using these articles to discuss some of the “other concepts” I’ve outlined? Or aren’t they relevant?


Padmanaban said...

That’s right. Unemployment is increasing day by day. Though there are job openings but still the case is very worse, since the companies are selective, and depending on the need, they take their time in finding the right candidate.

Anonymous said...

The link to the article at is not working.

Tim Schilling said...

I suspect the link is no longer active because newspapers only keep stories active for a short period.