Lawmakers Consider Teen Training Wage

January 31, 2014

On Wednesday I testified on two bills that would help alleviate our state’s high teen unemployment rate.  SB 6495 and SB 6471 would extend the current law that allows businesses to pay 14-15 year old workers a sub-minimum wage, to 16-19 year olds.

Washington State has the highest minimum wage in the nation ($9.32).  Businesses are allowed to pay workers 14-15 years old 85% of the state minimum wage precisely because employers need an incentive to hire young workers with no skills that are just entering the workforce.  Given the unemployment rate for 16-19 year olds in Washington is 30%, the 6th highest in the nation, it is obvious a much larger segment of teen workers is in need of relief.

The Great Recession cannot be blamed for our state’s poor teen employment ranking—since 2002, well before the recession, in all but one year Washington ranked among the top ten states with the highest teen unemployment.  Washington also has had the nation’s highest minimum wage.  A multitude of studies show there is a cause-and-effect relationship between the two.

SB 6495 would allow employers to pay the state’s current 85% training wage to 16-19 year olds.  SB 6471 would also allow a training wage for 16-19 year olds, set at the federal minimum, which is currently $7.25, but only during the “summer” months, defined as June 1 through August 31.

I testified that our state’s high minimum wage creates a barrier to teens just entering the workforce.  A a temporary training wage would provide employers with the economic incentive they need to take a risk in hiring a young, unskilled teenager just entering the work force over an older applicant with more job skills and a work history. 

Over 85% of the most credible studies examining the minimum wage conclude that a high minimum wage hurts the very people it is supposed to help—those with low-skills, such as young workers just entering the workforce.   The general consensus of decades of minimum wage studies is that a 10% increase in the minimum wage reduces teen employment by 1 to 3%.

The long-term effects of youth unemployment are much more profound than a teen without a summer job.   It creates a “wage scar” that leaves a lasting impact on a workers’ employment prospects and earning trajectory.  The longer the teen remains unemployed, the bigger the scarring effect.  Numerous studies show those who do not work as teenagers have lower long-term wages and employability, even after 20 years.

Studies also show a teen training wage would help prevent such wage scarring by encouraging teen employment.  A study by a Federal Reserve economist found having a starter wage well below the minimum counteracts much of the negative impact on employment for teens. 

The Organization for Economic Cooperation and Development (OECD), an organization comprised of 34 countries to foster economic progress, said in a 2010 report that teen unemployment could be reduced by allowing a “sub-minimum training wage” for teenagers.  And the former Chief Economic Advisor to President Obama, Larry Summers, has endorsed a teen training wage as a way to combat teen unemployment.

WPC has long recommended lawmakers allow employers to pay a temporary training wage to teen workers.  SB 6495 and SB 6371 are good public policy that would expand youth employment by making it economical for employers to hire low-skill workers just entering the work force. 

The result would be more teens being hired and receiving valuable work skills and experience, reducing the long-lasting “wage scarring” and other long-term consequences created by prolonged periods of unemployment for young workers.