Minimum Wage Hurts Starter Jobs

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Minimum Wage

Economists claim that minimum wage laws deprive less skilled workers of jobs, fail to reduce poverty and negatively affect a country’s wages and earning. In contrast, advocates of the minimum wage argue that employers can absorb higher minimum wages through higher productivity, lower recruiting and training costs, decreased absenteeism and increased worker morale. They argue that very little job loss or increased unemployment is associated with minimum wage increases.

The most honest thinking on both sides is correct.

Less than 2% of the workforce works for the minimum wage. About a quarter of these workers are ages 16 to 19 (younger employees are not even counted in the labor statistics). Another quarter of those on minimum wage are under age 25. So a full 50% of those working for minimum wage are younger than 25. They typically live with their parents, have little or no education and only work part time.

About 60% of minimum wage earners are in the leisure and hospitality industry, primarily in food and beverage services. Many receive tips and commissions that supplement their hourly wages.

Even though teenage workers make up a large component of those earning minimum wage, the reverse is not true. Only about 9% of teenage workers earn the minimum wage. Nearly all teens are able to command higher hourly rates.

Most minimum wage jobs are held by people who have not been employed in the past year. Thus any policies that reduce their chances for employment will not change the unemployment statistics. To be counted in the unemployment numbers, you must have first been employed. The inability to find a first job is not considered unemployment.

To understand why minimum wage hurts the most disadvantaged, imagine the people who can’t get hired at a job paying minimum wage or higher. They have not had a job in the past year. Many have never held a job. Their communication skills are inadequate; they have not taken advantage of educational opportunities. They have not learned to follow instructions or show up on time.

Like playing a sport, working for pay is a skill learned by doing. Training a new employee is costly, not just in salary, but also in the time and effort required to train and supervise, correct mistakes and perhaps suffer a loss of business because of poor service. Some first-time workers are not worth minimum wage. But without being hired, they can’t learn job-related skills.

Most minimum wage employees get a raise during their first year. They have learned the job skills necessary to command a higher salary and are on their way up. We need jobs at minimum wage to fill the lower rungs of the ladder. We also need jobs at below minimum wage to supply the bottom rungs of the ladder.

Let’s remember how many millionaires began working at or below minimum wage. My own first forays into the world of work included the mail room, shipping department and library. Landing a first job is challenging. With minimum wage, teenagers have a hard time getting hired at a part-time hourly job. I started working at age 15 and found my employers couldn’t pay me until the end of the summer when I turned 16. Both of my children were eager to do start working the summer after they turned 14. As a result they learned the job skills necessary to command higher salaries at a relatively young age. Working teenagers are increasingly rare.

Young people should learn how to earn money. But few teenagers seek summer employment because of the lack of available jobs, even at minimum wage. To raise financially savvy children, parents should help their kids find employment at the youngest possible age. Teenagers with work skills and experience become attractive future employees.

Here’s some advice for teenagers. First, you need a good command of English. It’s fine to be bilingual or use slang with school friends, but for most jobs you must know how to speak to adults. Parents can help if you are willing and invite such correction. Employers won’t bother; they just won’t hire you.

Second, learn to get there on time and prepared to work. On time means five minutes early, not thirty seconds late. Too many employees arrive late or fail to appear at all. If you are late and your replacement is now on the way, when you finally show up you will be sent home or fired. Showing up consistently is a prerequisite for being given a raise.

Third, take improving and educating yourself seriously. If you don’t take advantage of the opportunities you have to improve your education and skills, why should you expect anyone else to offer them?

Finally, learn to follow both the letter and the spirit of instructions. Employers need employees who will not only follow directions but also understand the intent behind them and be able to interpret correctly what additional steps are needed. Learn when to ask for clarification and when to think for yourself and not bother the boss.

The skills and life lessons that teens learn in early work situations can create just as much if not more satisfaction and self-confidence than doing well in school. And the experience will inspire them to put more effort into their education.

For those well-intentioned people who believe the minimum wage ought to be raised, they are really saying we ought to make it illegal to provide employment for those whose work skills do not yet justify a higher wage. They mistakenly assume that everyone is worth more than the minimum wage. I would challenge them to start a business and hire disadvantaged minority teenagers with poor English skills and little education or work ethic for their first job, pay higher than minimum wage and still try to run a business.

Minority teenagers have gone from less than 14% unemployment in 1956 to less than 14% employed today. No official measurement counts the disadvantaged teenagers who can’t find employment.

Real employers find that for a wage higher than minimum they are able to employ better quality employees. They can bypass the bottom 10% of teenagers and 1% of adults, leaving them unemployed. Making it illegal to hire these less skilled workers only hurts the less skilled workers. And without their first job, they will find it difficult to develop the job skills necessary to gain better employment.

Minimum wage and below is not a living wage. It is rather a starter job rate for those who lack the skills necessary to earn a living and have a career. Few work at such a level for more than a year. In fact, few work even at their first job for such a salary. But for those who have failed to take advantage of life’s opportunities, jobs at or below minimum wage give them yet another chance to apply themselves and prove their work worthy of a higher salary.

Photo by Wisconsin Jobs Now used here under Flickr Creative Commons.

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David John Marotta is the Founder and President of Marotta Wealth Management. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. In addition to his financial writing, David is a co-author of The Haunting of Bob Cratchit.

4 Responses

  1. David John Marotta

    Unpaid Interns ruled Illegal for Black Swan movie production

    A federal judge in New York ruled that the production of the 2010 movie Black Swan violated minimum wage and overtime laws by having unpaid interns. As reported by Rachel Aldrich of World Magazine in an article entitled “Unpaid intern win case against movie studio.”

    In the ruling, U.S. District Judge William H. Pauley III measured the company against a six-part test outlined by the Labor Department for determining whether an internship can be unpaid. Under the test, the internship must be similar to an educational environment, run primarily for the benefit of the intern as opposed to the employer, and the intern’s work should not replace that of regular employees.

    Pauley said Fox should have paid the two interns who filed the lawsuit because they did the same work as regular employees, provided value to the company, and performed low-level tasks that didn’t require any specialized training.

    Unpaid interns has long been a way of getting around the minimum wage laws. It has replaced the first starter job as the way to get your foot in the door. It has been the way to prove your worth to a company. Now, you won’t be able to prove your worth because the company is going to be required to organize the unpaid internship to be for the interns benefit. It will be illegal for the interns to “do regular work” or “provide benefit to the employer.”

    Why can consenting adults do whatever they want in the bedroom but not the boardroom? Government needs to get out of other people’s business in order for business to thrive.

    The decision may cause some companies to reconsider whether offering unpaid internships is worth the legal risk.

    “I’m sure this is causing a lot of discussions to be held in human resource offices and internship programs across the country,” said David Yamada, professor of law at Suffolk University in Boston.

    There are up to 1 million unpaid internships offered in the United States every year, said Ross Eisenbrey, vice president of the Economic Policy Institute, a liberal-leaning think tank, who blamed companies for exploiting young workers and driving down wages.

    But some question whether insisting all interns be paid will accomplish the desired goal. Raising the risk factor for companies hiring unpaid interns may not cause them to hire the same people for pay. It may make them wonder whether an employee with no experience, fresh out of college, is worth minimum wage to them. If not, the ruling may mean college graduates already struggling to find jobs now will have trouble finding experience as well.

    It makes me wonder too.

  2. David John Marotta

    Photo by cuncan c used here under Flickr Creative Commons.

  3. David John Marotta

    In a speech delivered at Hillsdale College, Senator Ted Cruz included these comments. The speech was adapted as an article entitled “The Miracle of Freedom.”

    It is precisely because economic freedom and opportunity outperform centralized planning and regulation that so many millions have risked everything for a chance at the American dream.

    Fifty-five years ago, my father fled Cuba, where he had been imprisoned and tortured—including having his teeth kicked out—as a teenager. Today my father is a pastor in Dallas. When he landed in Austin, Texas, in 1957, he was 18. He couldn’t speak a word of English. He had $100 sewn into his underwear. He went and got a job washing dishes and made 50 cents an hour. He worked seven days a week and paid his way through the University of Texas, and then he got a job, and then he went on to start a small business.

    Now imagine if, at that time, the minimum wage had been two dollars an hour. He might never have had the opportunity to get that dishwashing job and work his way through school and work his way up from there. I cannot tell you how many times I’ve thanked God that some well-meaning liberal didn’t greet him when he landed in Austin and put his arm around him and say: “Let me take care of you. Let me make you dependent on government. Let me sap your self-respect—and by the way, don’t bother learning English.”

  4. David John Marotta

    Interesting to read on Wikipedia’s “Adkins v. Children’s Hospital (1923)” that a federal minimum wage law was a violation of the Constitution before 1937:

    In 1918, Congress passed a law setting minimum wages for women and children in the District of Columbia. As in other cases, the question was one of balancing the police power of Congress to regulate health and safety with the right of individuals to conduct their own affairs without legislative interference

    The Court opinion, by Justice Sutherland, held that previous decisions (Muller v. Oregon, 208 U.S. 412 (1908) and Bunting v. Oregon, 243 U.S. 426 (1917)) did not overrule the holding in Lochner v. New York, 198 U.S. 45 (1905), protecting freedom of contract.

    It wasn’t until Franklin Delano Roosevelt packed the Supreme Court with six extra Justices in 1937 that the court finally over turned the 1923 Adkins v. Children’s Hospital and allowed minimum wage legislation. Prior to 1936 the United States Supreme Court ruled consistently that the general welfare clause of the Constitution had no legislative power.

    Originally the general welfare clause was intended to limit the Power of Congress to tax only for general welfare and therefore prohibit it from providing for special interest groups. It was included as summary to the 17 specific powers immediately following it. James Madison, principle author of the Constitution, argued that no one would misunderstand the general welfare clause to give Congress unlimited power when the specific limited powers are “not even separated by a longer pause than a semicolon.”