The mysterious rise in youth unemployment
By Scott Sumner
There’s a new piece in The Economist discussing the disturbing rise of youth unemployment all over the world. Oddly there is no mention of minimum wage laws. When supply doesn’t equal demand, shouldn’t artificial price floors be the first place to look? They do discuss other problems, such as lack of training, and then note in contrast that:
Germany, which has a relatively low level of youth unemployment, places a lot of emphasis on high-quality vocational courses, apprenticeships and links with industry. But it is an exception.
Oddly, no mention that Germany is the only large industrial country with no minimum wage.
Of course cross sectional data can reflect many factors, so let’s look at time series data. W. Peden directed me to a post by Britmouse, which discusses a major mystery that has puzzled the British government, particularly the commission that is engaged in determining the minimum wage rate. Apparently the rate of unemployment for 16 and 17 year olds has been rising sharply for nearly a decade. The commission noticed that the rise began well before the recent recession, indeed teen unemployment was rising even as the unemployment rate for adults was falling during the pre-recession boom. Britmouse has a graph that nicely illustrates the mystery:
Britmouse is also confused by this mystery, as you can see from this quotation:
It’s “difficult to explain”… right. A total mystery. I can’t think what might have caused it, so let’s blame immigrants and old people, those are surely the most “significant developments” in the British labour market in the years to 2008. If anybody does have any better ideas about what happened, be sure to write to Card, Krueger, Dube, etc.
Just to be clear, I am not at all convinced that minimum wage laws are the only factor involved here. But it’s interesting how many people don’t seem to be willing to even consider the possibility. Didn’t youth unemployment rise more relative to adult unemployment in the US during the recent recession, as compared to 1981-82? And didn’t we increase the minimum wage by nearly 40% just as we were sliding into the biggest slump in NGDP since the 1930s? And didn’t President Obama just call for another large increase in the minimum wage, on top of that 40% boost? And then didn’t President Obama change his mind and decide against the large increase in the minimum wage that he had proposed, suggesting instead that his proposed increase was too small, and that it should be even larger? And didn’t that proposal get criticized by conservatives in California, who said no, the increase should be still larger?
After all, if we make it high enough the Mexicans won’t be able to find jobs here. And so we come full circle, back the FDR’s New Deal, and the very first minimum wage laws of the 1930s. Which groups were those laws supposed to exclude?