Are Teen Unemployment Rates Influenced by State Minimum Wage Laws?

ABSTRACT Several recent studies have challenged the conventional notion that raising the minimum wage has negative labor market consequences. In particular, most recent minimum wage research has considered teen employment, with virtually no examination of unemployment rates. Given the conflicting findings in the recent literature, this study reconsiders this issue by examining the minimum wage's influence on teen unemployment rates. The empirical analysis considers state data from the latter 1980s, a unique period where many states raised their minimum wage above the federal level. The results suggest that both a greater minimum wage rate and greater minimum wage coverage increase teen unemployment rates. Further evidence suggests that employment declines outweigh teen labor force reductions, suggesting that increases in unemployment are primarily caused by labor demand shifts. Thus, policy makers should weigh these costs in deciding future minimum wage hikes.