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November 2012 Brief: Volume 19, Number 31

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Teen Unemployment in Iowa

 

by Amy K. Frantz

 

 

For many teens in Iowa, a job is not only a means of earning spending money or saving for a college education, it is a way to gain experience in the skills required for a particular job, as well as the general responsibilities that go along with holding a job. And for those teenagers who graduate from high school and decide not to go on to college, they must find jobs to support themselves and possibly their families. Those who do go to college may work to support their educational endeavors. However, this category of workers often faces difficulty in finding a job.

 

Unemployment rates in Iowa are consistently higher for teens age 16-19 years old and for high school graduates age 18-20 years old than they are for the Iowa workforce as a whole.[1] According to Census Bureau data, in 2011, the unemployment rate was 13.8 percent for teens age 16-19 years old and 17.6 percent for high school graduates age 18-20 years old. Among all Iowans, the unemployment rate in 2011 was 5.9 percent.

 

Unemployment Rates in Iowa, 2002-2011

Source: Analysis of monthly Current Population Survey data from the U.S. Census Bureau, U.S. Department of Commerce.

 

In 2007, the Iowa Legislature and then-Governor Chet Culver adopted legislation to increase the state’s minimum wage in two steps. In April 2007, the state’s minimum wage increased by $1.05, from $5.15 an hour to $6.20 an hour. Then on January 1, 2008, the minimum wage was increased by another $1.05, going from $6.20 to $7.25 an hour.[2]

 

The federal government also increased the federal minimum wage around that same time. The federal minimum wage was raised to $5.85 an hour in July 2007, it increased again to $6.55 an hour in July 2008, and finally in July 2009 it was increased to $7.25 an hour, matching the Iowa minimum wage at that time.[3] Both the Iowa and the federal minimum wages stand at $7.25 an hour today.

 

Unemployment rates for teens age 16-19 were at the lowest rate in a decade in 2006, at 10.3 percent. Likewise, high school graduates age 18-20, with an unemployment rate in 2006 at 10.4 percent, had the second lowest rate of the decade for that category of workers.[4]

 

The increase in teen unemployment rates was impacted by the increase in the minimum wage. “Teenagers are five times more likely to earn the minimum wage than adults.”[5] Thus, the impact of an increase in the minimum wage would be felt dramatically by that segment of the workforce. One small business owner in Iowa, Tom Shockley of Tom’s Market & Meats, said “the biggest local impact will be to young workers 14 to 16 years old.” He went on to say:

 

I think [the new minimum wage] is going to have an effect on the whole retail community on how we deal with the part-time people…There used to be a big advantage when you take a 14- or 15-year-old on at $5.15 an hour and train them.... I think we’ll definitely take a different look at hiring workers in that age range.[6]

 

With a higher minimum wage, business owners need a certain skill set and level of productivity to make hiring an additional worker worthwhile, and often teen workers do not have the skills required, and thus often remain unemployed.

 

A study by Economists William E. Even of Miami University and David A. Macpherson of Trinity University looked at the impact of the minimum wage on jobs available to teens.[7] In an update of their findings, the increase in the minimum wage above the 2005 level of $5.15 per hour resulted in the loss of 3,856 jobs for 16 to 19 year olds in Iowa.

 

One idea for reducing teen unemployment and improving the prospects for teenagers to obtain jobs is to allow a lower minimum wage for teen workers, with more flexibility than Iowa’s “initial employment wage” of $6.35 per hour for the first 90 calendar days of employment.

 

Many teen workers have lower skill levels than adult workers, and part of the benefit of holding a job as a teen is the training they receive as well as learning the basic skills of responsibility and accountability of holding a job. Allowing businesses to hire teen workers at a lower wage level would open up opportunities for more teens to gain this valuable work and life experience.

 

Public Interest Institute’s POLICY STUDY, Teen Unemployment in Iowa, can be viewed at http://www.LimitedGovernment.org/publications/ ps-12-7.html.

 

Endnotes:
[1] Analysis of monthly Current Population Survey data from the U.S. Census Bureau, U.S. Department of Commerce.
[2] Nick Bergin, “Wage bump hits,” The Burlington Hawk Eye, January 2, 2008, <http://www.thehawkeye.com/Story/Minimum_wage_010108> accessed July 23, 2012.
[3] “Federal Minimum Wage Rates Under the Fair Labor Standards Act,” U.S. Department of Labor, Wage and Hour Division, <http://www.dol.gov/whd/minwage/chart.pdf> accessed July 22, 2012.
[4] Analysis of monthly Current Population Survey data.
[5] “The Young and the Jobless,” The Wall Street Journal, October 3, 2009, <http://online.wsj.com/article/SB10001424052970203440104574402820278669840.html> accessed July 23, 2012.
[6] Bergin.
[7] William E. Even and David A. Macpherson, “The Teen Employment Crisis: The Effects of the 2007 - 2009 Federal Minimum Wage Increases on Teen Employment,” July 2010. Figures used in this study are updated from the 2010 study.

 

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