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July 2012 Policy Study, Number 12-7

   

Teen Unemployment in Iowa

   

Reducing Teen Unemployment

   

 

One idea for reducing teen unemployment and improving the prospects for teenagers to obtain jobs is to allow a lower minimum wage, or “sub-minimum,” wage for teen workers. The state of Iowa does allow an “initial employment wage” of $6.35 per hour for the first 90 calendar days of employment. This initial wage applies to all workers, not just teen workers.[19] However, a 90-day limit would discourage some employers from hiring teens, even at the initial hourly wage of $6.35 rather than $7.25.

 

A report from the Organization for Economic Co-Operation and Development (OECD) indicates that many European countries are implementing policies to reduce youth unemployment by allowing companies to pay lower minimum wages to youth workers:

 

Almost half of the OECD countries with a statutory minimum wage (ten out of 21) have an age-related sub-minimum wage to facilitate access of low-skilled youth to employment….Another option would be to promote apprenticeship contracts for low-skilled youth, where the apprenticeship wage is lower than the minimum wage because it implies a training commitment for the employer.[20]

 

David Neumark of the University of California, Irvine, and William Wascher of the Federal Reserve also address this policy idea:

 

Another recent study,…also by Messrs. Neumark and Wascher, found a highly negative association between higher minimum wages and youth employment rates [in 17 OECD countries]. But it also concluded that having a starter wage, well below the minimum, counteracts much of this negative jobs impact. If Congress won’t suspend its recent minimum wage hike, it should at least create a teenage wage of $4 or $5 an hour to help put hundreds of thousands of teens back to work. [Former] White House chief economic adviser Larry Summers has endorsed this in the past. Without this change, expect the teen unemployment to remain very high for a long time.[21]

 

Many teen workers have lower skill levels than adult workers, and part of the benefit of holding a job as a teen is the training they receive as well as learning the basic skills of responsibility and accountability of holding a job. Allowing businesses to hire teen workers at a lower wage level would open up opportunities for more teens to gain this valuable work and life experience.


   

 

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