Declining teen employment: minimum wages, returns to schooling, and immigration

an article by David Neumark (UCI, NBER, and IZA, and CESifo, University of California-Irvine, USA)) and Cortnie Shupe (DIW, Free University Berlin, and Mercatus Center. DIW Berlin Mohrenstr, Germany) published in Labour Economics Volume 59 (August 2019)

Highlights

• We investigate three main explanations for the decline in teen employment in the United States, which began in 2000 and occurred mainly among those who had been employed while in school.
• The three main explanations we consider are increases in minimum wages, rising competition for low-skill jobs from immigrants, and increases in the returns to schooling.
• The predominant explanation for the decline in teen employment is increases in minimum wages.
• Increased immigration also played a role, while changes in returns to schooling have had a negligible influence.

Abstract

We explore the decline in teen employment in the United States since 2000, which was sharpest for 16–17 year-olds.

We consider three main explanatory factors: a rising minimum wage that could reduce employment opportunities for teens and potentially increase the value of investing in schooling; rising returns to schooling; and increasing competition from immigrants that, like the minimum wage, could reduce employment opportunities and possibly also raise the returns to human capital investment. We find that, among these factors, higher minimum wages are the predominant factor explaining changes in the schooling and workforce behavior of 16–17 year-olds since 2000.

The employment decline arises from a combination of a lower likelihood of being both employed and enrolled in school, and a higher likelihood of being enrolled in school only (not employed). These effects are consistent with the minimum wage leading students to increase their focus on schooling to meet a higher productivity standard for jobs with a higher minimum wage.

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