Minimum Wage Freezes Out the Young

July 17, 2006 | by | Topic: The Path to FreedomPrint Print

A few days ago, I told my teenage daughter, who works at the local Dairy Queen, that the minimum wage in Pennsylvania is going to increase. Since she makes a little less than $6.25 per hour, which is the amount the law requires employers to pay after January 1, you might expect her to be happy about the increase. She understands enough economics, however, to realize that this increase might not benefit her. She recognized that if her coworkers make ice cream cones better than she does, and that if Dairy Queen chooses to have fewer employees if they have to pay more, they might fire her.

I think my daughter is a pretty good worker, so I doubt that Dairy Queen will fire her when the higher minimum wage takes effect, but they might not ask her to work as many hours. More likely, since there is a lot of turnover there, they won’t hire quite as many new employees as there are at the current wage. Since they already pay close to $6.25, there might not be a noticeable effect on their hiring until the minimum wage rises to $7.15, which will happen next July. For businesses that are now paying some of their employees $5.15 or a little more, the decrease in employment will be larger and may begin even before the increase takes effect as they anticipate the number of workers they want to have next year.

Why am I so confident that a higher minimum wage will make it harder for some people, particularly teenagers, to find work? The goal of business owners is to make a profit, and to make a profit, they must charge a high enough price so that their revenues exceed their costs. They also must contend with a fundamental economic principle known as the law of demand. If they raise their prices to make up for the cost of the higher minimum wage, they will sell less of their product. If sales go down at Dairy Queen they will need fewer workers or find it is no longer profitable to be open as many hours each day. Either way, the result is fewer hours of work for their employees or fewer people hired.

Should we be concerned about fewer work opportunities for some workers, most of whom are young people, like my daughter, just entering the work force? While a higher minimum wage will clearly benefit some workers, it will also mean that some who would like to work and need the income to support themselves or their families, will be unable to find work or won’t be able to work enough hours.

Those who are likely to be hurt by the minimum wage are also the most vulnerable. Under what circumstances does an employer hire a worker with no experience, few skills, and limited education?The employer will only take such as risk if he is reasonably confident that he can make a profit by doing so. An employer is more likely to risk hiring someone with no work experience if she can start out paying a low wage, raising it once it becomes clear that the person is capable of doing the job and will work hard.

For workers with a high school education or less, one of the best ways to get skills and develop good work habits is through training provided by an employer. However, providing training is costly, so that the higher the wage he or she must pay, the less likely an employer will risk providing training to an unproven worker. If employers can pay a low wage to workers during their training period, then the workers will gain marketable skills that will make them more productive so that they move up the ladder to better paying jobs in the future.

Josh Rittinger, manager of the 3B Ice Cream company, told The Patriot-News of Harrisburg, Pa., “I’m not going to hire 15 year-olds and teach them how to count change. I will hire somebody who already has a job. I can’t give them the time to learn.” The general manager of Pronio’s Market in Hershey told the The Patriot-News that the minimum wage increase will force him to hire adults or senior citizens with experience.

It will be a few more years until my youngest daughter will be old enough to make Blizzards for Dairy Queen. By then the minimum wage will be $7.15. I wonder if her chances of getting a job at that rate will be better than getting a snowstorm in July.

Tracy Miller

Tracy Miller

Dr. Tracy C. Miller is an associate professor of economics at Grove City College and fellow for economic theory and policy with The Center for Vision & Values. He holds a Ph.D. from University of Chicago.

High resolution photos»

Donate to The Center for Vision and Values