Do higher minimum wages harm minority and inner-city teens?

INTRODUCTION

Economists and policymakers once again find themselves engaged in a heated debate, as legislation awaits the president's signature to increase the federal minimum wage from $5.15 to $6.15 per hour. A neglected, yet important, component of this debate is the effect of minimum wage increases on teenagers' school enrollment and employment. The scant number of studies on this issue have yielded contradictory findings, rendering the effect of higher minimum wages on school enrollment and employment of teenagers unresolved.

The impact of a higher minimum wage on the teenage employment and school enrollment is an important issue to policymakers, given the demographics of minimum wage workers. Current statistics based on the March 1998 Current Population Survey show that teenagers between the ages of 16 and 19 represent 27.3 percent of workers who would be directly affected by the proposed increase (Turner, 1999). Furthermore, a vast majority, 66.5 percent, of teens and young adults who would be directly affected by the proposed minimum wage are also enrolled in school.

While a large body of the literature solely examines the employment effects, only a few studies have investigated the impact of minimum wage hikes on teens' joint employment and educational attainment decisions. We agree with Ben-Porath (1967) in that educational attainment and employment are jointly determined and that more research should be focused on how labor market policies influence this joint decision-making. With this motivation, we explore, in this paper, the impact of higher minimum wages on teen employment and school transitions. We analyze the economic consequences of an increased minimum wage on teenagers in general and key demographic subgroups among the teenage population.

We contribute to the existing literature by using data from Survey of Income and Program Participation, which we consider to be a well-suited dataset for following teens over time. Our methodological approach is nearly identical to that used by Neumark and Wascher (1995b). Our findings are mostly consistent with Neumark and Wascher's study. For example, black and Hispanic teens and teens in a central city are more likely to become idle, i.e. not-enrolled and not-employed, as a result of the minimum wage increase. Inconsistent with their findings, we find that the proposed minimum wage hike would increase overall teen employment and decrease the probability of idleness.

In the next section, we review the existing literature and discuss this study's contribution. In the following section, we discuss the dataset and variable definitions, and following that we explain the methodology used in this paper. In the penultimate section we summarize our empirical results and in the last section discuss their policy implications.

LITERATURE REVIEW