This piece by Sam Bowman irritates me. He says:
The minimum wage is pricing young people out of the market…
All the job schemes in the world wouldn't give young people as much of a fighting chance as letting them compete freely for jobs.
Let’s ignore, as Sam does, this paper which argues that “It does not appear that youths are pricing themselves out of work” and that there is “little or no evidence” that the minimum wage is responsible for youth unemployment. And let’s also ignore this paper, which finds “no compelling evidence” that the NMW has raised youth unemployment.
Instead, let’s do some sums. There are 4.34 million 18-24 year-olds not in full-time education (table 14 of this pdf). Of these, 2.87m are in work and 1.47m are unemployed or inactive. This means that to get youth joblessness down to 5%, employment must increase by over 40%. What sort of wage fall is required to achieve this?
It depends on the price elasticity of demand. If this is unity, we need a 40% wage cut. This would mean that 18-20 year-olds now on the minimum wage of £4.92 an hour would get less than £3.
This raises lots of questions. What exactly is the price elasticity of demand for labour? Would people really accept such low pay? And even if they did, would employers really want to hire them, given that such workers are poor quality anyway (watch Michel Roux’s Service), and low wages would further demotivate them? In light of these questions, mightn’t there be other reasons for youth unemployment, and other solutions than wage cuts?
However, Sam not only ignores the academic research, but ignores these questions too. All he gives us is a glib Econ 101 assertion. What we have here is a lack of curiosity about the economy, a belief that the assertion of prejudice is sufficient.
And herein lies my irritation. This egomaniac elevation of prejudice over curiosity is far too common, and not just on the right.
Would people really accept such low pay?
As an unemployed young person let me the first to say that selling blood, prostitution and compost toilets would hold far greater appeal.
Posted by: BenSix | January 22, 2011 at 02:34 PM
"All he gives us is a glib Econ 101 assertion."
Isn't that exactly what we've all come to expect from the Adam Smith Institute, though? The recent post arguing against paying interns is similarly blinkered.
Posted by: Tom | January 22, 2011 at 02:39 PM
Am I right in saying that youth unemployment is 33% (as in % of those looking for work)? I remember this point being made about French unemployment (by D2) that the %, although obviously far too high, look higher than they actually are.
Posted by: Matt | January 22, 2011 at 03:36 PM
@Matt - among those not in full-time education, the unemployment rate is 15.7 per cent. However, there are more economically inactive than there are registered unemployed.
Posted by: chris | January 22, 2011 at 06:05 PM
@matt,
there's a paper by monica threlfall from the royal statistical society on your point http://www.radstats.org.uk/no088 Threlfall88.pdf
t
Posted by: Tony | February 19, 2011 at 12:32 PM