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Wednesday, August 18, 2010

Is Anyone Shocked by High Teenage Unemployment?

No, FDR, economic laws are not manmade.

In his nomination speech at the 1932 Democratic National Convention, Franklin D. Roosevelt declared, “We must lay hold of the fact that economic laws are not made by nature. They are made by human beings.” Indeed, much, if not all, of the New Deal was an attempt to circumvent economic laws – with predictable results.

George Santayana wrote, “Those who cannot remember the past are condemned to repeat it,” and it is true. Perhaps we see the clearest example in how politicians and bureaucrats claim to be able to rewrite the laws of economics. Nowhere is that example more stark than the case of teenage unemployment and minimum wage legislation.

When he was running for president Barack Obama declared that he wanted to see a minimum wage of $9.50 an hour by 2011, which would follow the increase to $7.25 last year. While he claimed this would “bolster” workers and make the U.S. economy stronger, in reality Obama would have been more truthful had he run on a promise to put teenagers out of work.

Indeed, teenage unemployment today is around 26 percent, and the Usual Suspects are concerned. The situation is so bad that some young people are even taking unpaid internships, something that state governments (and the unions that back them, of course) have declared illegal. Others, like this blogger, bemoan the fact that young people are not getting valuable work experience.

Yet for all of the angst from people who really want to believe that government fiat can trump economic laws (or create new ones), we are dealing with a situation that surprises no one who actually respects economics. The combination of both a recession and a substantial increase in the minimum wage is hitting low-skilled workers (and teenagers pretty much fit into that category) who are an economic burden to employers if they cannot produce enough to justify their pay.

A March Wall Street Journal editorial (subscription site) laid out the carnage that only has become worse:

A higher minimum wage has the biggest impact on those with the least experience or the fewest skills. That means in particular those looking for entry-level jobs, especially teenagers. And sure enough, as nearly all economic models predict, the higher minimum has wreaked havoc with teenage job seekers, well beyond what you would expect even in a recession.

The numbers simply are depressing. For all teenagers the number is about 26 percent, and for black male teenagers, it’s over 50 percent. This is not due just to increases in the minimum wage; many African-American teens live in the inner cities, which are not citadels of commerce.

Barrier to Entry

Nonetheless, a minimum wage that exceeds many teens’ marginal productivity is a barrier to entry into the workforce. Unfortunately, too many people not only fail to see the role of government in creating this crisis, but also believe that government can solve it. Writes financial journalist David Schepp:

A program such as the Depression-Era Civilian Conservation Corps, which put about 3 million young men to work in the 1930s, could go a long way toward putting youth to work in public works projects. CCC provided work experience and income to a generation of inner-city youth who might have otherwise been lost, (Prof. Michael W.) Brandl says.

I agree that the consequences of keeping young people out of the workforce can be severe, but we have to understand that government policies are to blame, and to expect government to solve the problem it created with more intervention is insanity squared. Contra FDR, the laws of economics cannot be breached with impunity
by State policies any more than King Canute could order the tide not to rise.

  • Dr. William Anderson is Professor of Economics at Frostburg State University. He holds a Ph.D in Economics from Auburn University. He is a member of the FEE Faculty Network.