Youth employment & minimum wages

Stephanie Flanders hits us with this fact:

In the second quarter of 1992, two-thirds - 65% - of 16-17-year-olds who were not in full-time education were reported to have a job. Now the figure is 35%.

Leigh Caldwell says: “there is a very clear suspect here: the minimum wage.”
My chart might shed light upon his theory. It shows the time series to which La Flanders refers, with a line showing the introduction of the NMW for 16-17-year-olds in October 2004; the rate was set then at £3 per hour, just under one-third of median adult hourly pay.
You can see that there was a sharp fall in the employment rate immediately following that introduction. Between Q4 2004 and Q4 2005, the rate fell from 54.2% to 46.3%, equivalent to 46,000 losing their jobs. The rate then stabilized before falling during the recession; youth employment is notoriously cyclical.
However, my chart also shows that the employment rate was falling before the NMW was introduced. This suggests the NMW has not been the sole culprit in the collapse in youth employment.
I’d suggest two other factors. One is the fall in demand for unskilled workers generally, partly because low-skill manufacturing jobs are now done in the far east.
The other is a form of selection effect.  In the mid-90s, only two-thirds of 16-17 year-olds were in education. Today, over 82% are. This means the calibre of a 16 year-old who’s not in school has changed. When one-third of them weren’t at college, there was a fair chance of some of these being bright and hard-working. However, these are now likely to be in school. This means those who aren’t at school are likely to comprise a larger proportion of numpties whom employers just don‘t want.

Comments

[Leigh Caldwell]

Both very good points - the selection effect seems likely to be especially relevant.

[Robert Arbon]

Interesting. I would like to know what is the role of expectations in the hiring decision. Would the impact of a NMW be less if firms were positive about the future and would thus expect to offset any, if not outright losses but smaller returns on labour than they would during downtimes?

[John Terry's Mum]

What exactly is a numptie? (I don't use google).

[Frank Little]

May I respectfully suggest that John Terry's Mum buys Chambers? "numpty (scot.) an idiot".

[chris c]

Thanks for being the rare economist that doesn't blame youth unemployment on minimum wage rates...

...you could have tried a bit harder, though. ;)

[Innocent Abroad]

So if approximately two-thirds of 16-17 year olds who are not in full time education aren't in work either this would suggest that up to 12% or about one eighth of the notional workforce are in effect unemployable.

Be interesting to have this group broken down by gender and ethnicity...

[jameshigham]

It's just too depressing for words.

[bulk lots]

Here in the philippines the minimum wage is not enough for a single person. that's too bad for us here. I can barely manage my account.

[Sam]

The graph is quite clear - it's flat at 65% until about 1998, where it turns over and falls at 2% per year thereafter. The plummet over the last year or so is clearly recession-induced, and irrelevant to the long-term behaviour.

Your factors are likely to be leading contenders. I am somewhat struck by the similarity between the time that the curve bends over and the election of a Labour government. Maybe a change in benefits policy (or perception of benefits policy, which is probably more important) is a factor, too.

[Jobs]

I think that it is just a right wage for their age though they are still young but if they have finished a college degree or are still in school, they should have no problem in asking for a higher salary in the jobs they are in.

[دار التميمي حمد]

I think that it is just a right wage for their age though they are still young but if they have finished a college degree or are still in school, they should have no problem in asking for a higher salary in the jobs they are in.