As part of ongoing efforts to pass another COVID-19 relief package, congressional Democrats are still including a proposal to more than double the current federal minimum wage, increasing it to $15 per hour by 2025.
Naturally, most of the policy debate has focused on how many jobs would likely disappear after such a change goes into effect. However, this well-worn back and forth over the number of existing jobs that could be lost if the proposal is enacted glosses over the true cost of a $15 federal minimum wage — crippling the lifelong economic prospects of teens and younger workers by reducing opportunities to develop the skills needed to succeed in the modern labor market.
Like almost any policy, dramatically increasing the minimum wage would have both winners and losers. Minimum wage workers able to keep their jobs would see an increase in pay, while others would see their jobs disappear. The nonpartisan Congressional Budget Office (CBO) estimates that phasing in a $15 federal minimum wage would reduce poverty, but would also mean 1.4 million fewer jobs. Furthermore, these costs and benefits would not be evenly distributed. Dynamic cities with tight labor markets will shrug at an increased minimum wage, while economically depressed areas with a lower cost of living would be hit much harder. More productive workers would likely gain employment opportunities, while less productive workers, such as teenagers and younger workers with less experience, would have far fewer.
According to the Bureau of Labor Statistics, in 2019 nearly 59 percent of workers earning the minimum wage were between the ages of 16 and 24. Notably, these younger workers are the most at-risk of losing their job as the minimum wage increases and would likely suffer the most severe long-term economic consequences from the inability to develop key job skills at an early age.
Recent research suggests that “soft skills” are at least as important and may be even more important than cognitive skills in predicting future economic success. Soft skills can be defined as a broad set of competencies, behaviors, attitudes and personal qualities that enable people to effectively navigate their environment, work well with others, perform well and achieve their goals. These skills are increasingly valuable for success as automation changes the nature of work and the labor market provides a distinct wage premium for workers able to bring them to the job.
So where can workers gain these increasingly important skills? You guessed it — entry-level employment. In a USAID report on soft skills and youth success, the authors noted “theoretical literature suggests that adolescence and young adulthood are optimal times to develop and reinforce these skills.” Other research shows long-term wage premiums and greater employment opportunities for workers who engaged in the labor market at an earlier age, particularly by working in their senior year of high school or in summer jobs. In other words, exactly the types of job opportunities that minimum wage increases are the most likely to destroy.
Another reason to be particularly concerned about reducing opportunities to develop these soft skills right now is the fact that such skills have almost certainly atrophied during the pandemic. Psychologists have warned that decreased levels of regular social interaction are making us all a bit more socially awkward. These effects are particularly concerning for school-aged kids, and with many schools around the country still closed, a job during the summer might be an important step in recovering some of those weakened skills.
Moreover, the negative effects of an increased federal minimum would extend far beyond one-time job losses. Economists Jonathan Meer and Jeremy West found that, “the minimum wage reduces the rate of job growth rather than leading to substantial job losses that are readily seen in the data. It’s not that people get fired, it’s that they’re never hired in the first place.” More recent research from David Neumark and Grace Lordan found similar results, stating that “increasing the minimum wage decreases significantly the share of automatable employment held by low-skilled workers.”
Understanding how raising the minimum wage – particularly at the federal level and during a pandemic – is likely to affect the long-term economic prospects of younger workers deserves to be a bigger part of this discussion. The immediate effects on employment are certainly important, but policymakers should also deeply consider risks in reducing opportunities for teens and younger workers to gain the skills necessary to succeed later in life.
Ben Wilterdink is the director of programs at the Archbridge Institute, a Washington-based think tank focused on economic mobility.