The Low-Wage Labor Market: Challenges and Opportunities for Economic Self-Sufficiency. Does the Minimum Wage Help or Hurt Low-Wage Workers? . Teen Employment and the Minimum Wage

12/01/1999

Quote from Samuelson and Nordhaus (1985): 'Minimum wages often hurt those they are designed to help...

Economic theory suggests that teens bear most of the disemployment effects resulting from a minimum wage hike, compared with any other demographic group (e.g., adult males), since minimum wages directly affect a high proportion of employed teens. Thus, a great deal of the research examines the economic impact an increase in the minimum wage would have on teenagers. Researchers have typically examined the influence of the minimum wage on teenagers 16 to 19 years old.10  Earlier time-series studies that analyzed the impact of minimum wages on teen employment over time found that, in addition to the disemployment effects, some teenagers withdraw from the labor force (stopped actively looking for employment) following a minimum wage increase.11

In a recent book, David Card and Allan Krueger reviewed their research that used a natural experiment framework to examine whether minimum wages affected employment in the fast-food industry in New Jersey and Pennsylvania.12  To examine how employment might be affected by the New Jersey minimum wage increase, Card and Krueger collected data on employment from a sample of about 400 fast-food restaurants in New Jersey and Pennsylvania before and after a minimum wage hike in New Jersey took effect.13

On April 1, 1992, the state minimum wage in New Jersey was increased from $4.25 to $5.05, while the minimum wage in Pennsylvania remained at $4.25 (the federal minimum wage). Other things being equal, economic theory predicts that employment would fall in New Jersey in response to the increase in the legal minimum wage and would remain unchanged in Pennsylvania. In contrast to economic theory and earlier time-series studies, Card and Krueger found that employment in the fast-food restaurants in New Jersey increased relative to employment in Pennsylvania's fast-food restaurants.