The NMW: a menace to youth?

Tim thinks that the Low Pay Commission is coming round to his way of thinking. He notes a report in Telegraph and says:

We said that if you bring a min wage, one which continually rises above general wage inflation, then you will get to a point where it does severely crimp employment prospects. And it will be first evident among the young, untrained and untried.

Now, let’s leave aside the fact that the Commission has not done anything as vulgar as actually present new facts here; a chat to a Torygraph reporter does not count as evidence. And let’s also leave aside the fact that others have found the link between the NMW and youth unemployment to be surprisingly elusive.
Let’s instead do some simple maths. There are 4.06 million 18-24 year-olds not in full-time education. 2.77 million of these are in work, and 1.29m - 31.8% - are unemployed or inactive. This means that to get the employment rate up to 80% for this group would require an increase in employment of 17.3%.
How could such a rise be achieved by abolishing the NMW? There are only two possibilities: either the abolition allows wages to fall a very long way; or the price elasticity of demand for young workers is very high.
The former seems unlikely. I suspect that even if people did turn up to work for derisory pay, the effort they put in would be minimal. Remember, it’s not just laws that set the minimum wage - social norms do too. And it’s possible that these put a floor under wages that isn’t far below the legal one.
The latter is also doubtful. High elasticities usually exist only where there are close substitutes. Yes, it’s likely that an average 20 year-old is a close substitute for an average 21-year-old, and this will generate a high price-elasticity of demand for 20-year-olds. To this extent, abolishing the youth NMW might expand youth employment a lot.
But the corollary of this is that the youth NMW is currently having the opposite effect - of supporting demand for 21-year-olds.
What’s more, this is only true for averages, and we’re not dealing with averages here. As Tim says, the youth NMW bears heaviest upon the least skilled, the “untrained and untried.” But these, by definition, have fewer close substitutes and so the price elasticity of demand for them is likely to be low.
These thoughts lead us to the conclusion - that even if we do live in the Econ 101 world in which lower prices of youth workers raise demand, it is improbable that abolishing the NMW alone would create anything close to full employment among the young.
There are many other things wrong with the youth labour market: lack of demand, lack of skills, poor matching between skills and vacancies, whatever.  The NMW is a lesser problem. Blaming it for youth unemployment is an example of what I’ve called the “small truth, big error” rhetorical trick. 
The notion that scrapping minimum wages is sufficient for full employment of young people is fancifully utopian.

Comments

[Luis Enrique]

hooray ... I wonder to what extent that line of thinking is explained by economists looking at models in which the only thing that could cause unemployment is too-high wages? I know more advanced labour economists use models that feature things like matching between skills and vacancies, but afaik even cutting edge labour economics doesn't really have a way to capture "lack of demand" as such.

[some might say this is because "lack of demand" per se isn't a terribly meaningful concept ... I'm not sure]

[PeterM]

But there is a lot of economic activity that is not being done, because it is not quite enough work to ball-up into a job, complete with regulation, and full employment status.

There is enough there, though to allow somebody unskilled to demonstrate attendance, a work-ethic, to get started with a work record and hopefully, to progress on to something resembling a proper job. We used to call such activity entry-level work. I picked tomatoes, and did other agricultural labour when I was younger. Now I get paid pretty well, not because of state regulation, but because there is a shortage of supply in my area.

Given the choice between hundreds of thousands of youngsters sitting at home, feeling that they are worth more, or those same performing economic activity which is beneath them, sure, but also potentially theurgical, rather than isolating. I can guess what a healthy democracy would prefer.

Once youth labour starts to be mined effectively it would be nice to imagine that the best workers will be able to negotiate for higher, than the current minimum wage. Which unfortunately for faux progressives, has become a de-facto which has benefited the employer class more than the down-trodden labourer.

[CahalMoran]

Chris,

It has been empirically and theoretically demonstrated that the MW does not increase unemployment. The infallible Robert Vienneau has a blog post on this:

http://robertvienneau.blogspot.com/2007/12/wages-employment-not-determined-by.html

For far more detailed treatment see 'Economics for the Rest of Us' by Moshe Adler.

[Mercy]

"And let’s also leave aside the fact that others have found the link between the NMW and youth unemployment to be surprisingly elusive." covers that no?

It's sometimes worth granting someone a small untruth (like that the minimum wage can be empirically linked to rises in unemployment) in order to catch them out in a massive whopper (like that the minimum wages we use would be significant even if that were true).

[PeterM]

When I fell thru the employment net, thanks to Chairman Brown's British-jobs-to-Asia campaign beginning around 2002, I found that everything for which I applied that was non-skilled (I didn't want to relocate to Bangalore) was offering the same, minimum wage. Fun times. Humiliation is good for the soul. I heartily recommend it - to other people.

[Mark Wadsworth]

Thanks for linking to my NEA post.

[charlieman]

Luis: "some might say this is because "lack of demand" per se isn't a terribly meaningful concept ... "

We see "accelerated demand" and the occasions when suppliers think that they can ramp up to meet demand, but then it all falls over.

"Lack of demand" might be like that: the company keeps on its toes, waiting for the buyer, and the order never comes.

In both cases, the company cannot organise itself to meet demand. A few weeks later, the owners nod, we would have been all right if the order came in on time.

[Lisa]

Interesting

[Alex]

I found that everything for which I applied that was non-skilled (I didn't want to relocate to Bangalore) was offering the same, minimum wage. Fun times. Humiliation is good for the soul

Just imagine if they'd been allowed to offer you less money! Wouldn't that have been so much less humiliating?

[gratta e vinci online]

It is farfetched that annulling the NMW apart from everyone else could make anything near full livelihood around the green.

[Moncler Billig]

This is such a beautiful image! Is that what you call Digital Painting? It looks stunning.