Youth Unemployment, a case for decreased regulation

Jacque Lipchitz noted that “Cubism is like standing at a certain point on a mountain and looking around. If you go higher, things will look different; if you go lower, again they will look different. It is a point of view.”

Youth unemployment is an excellent example of how government regulations are but a point of view on this grand mountain of Economica. In the West we take pride in our minimum wage laws. We read chilling stories of boys in Bihar laboring for less than a dollar a day. We feel our system, our democracy – unequal as it may be – vindicated by the guarantee that our sons and daughters are paid a fair share for their hard work.

However, as we traverse that mountain we see that the very institutions protecting our youth are tearing society at the seams. There are effectively two ways to decrease unemployment: by encouraging employers to hire more workers (through stimulus, economic growth, etc.) or by decreasing the size of our labor force.

For the economy as a whole, the latter is undesirable. It might signal an increase in discouraged workers as has been noticed on both sides of the Atlantic over the past few years. It might signal a workforce that is unskilled in the context of modern demands. It might signal, especially scary for conservatives, a workforce simply unwilling to work. In a purely neoclassical model, a contraction in labor supply would also result in cost-push inflation. However, in the context of youth unemployment, a smaller workforce might be a good sign.

It means that more of our youth are investing in their future by going to college. It might mean that fewer students feel the economic pressure to work, fulfilling extracurricular pursuits such as sport and family-time, both activities any modern and wealthy economy ought to encourage.

Therefore the first way to decrease youth unemployment is to contract the labor force in a beneficial way – incentivize college education and ensure that families are able to make end’s meet without forcing children to work.

This still leaves a pretty big hole left to be filled. What about young students uninterested in pursuing further education? What about the many that want to work at Carrefour for the plain pleasure of it? This is where our perspective ought to change vis-a-vis minimum wage.

While implemented with noble intentions, preventing the economic reality of wage depression in a relentlessly free market, the minimum wage is one of the key culprits of youth unemployment. It is no accident that in Western countries teenage unemployment is almost twice as high as general unemployment; no accident that, historically, increases in minimum wage result in a sharp increase in youth, and not general, unemployment.

The reality is that the marginal revenue product of labor from hiring a young student is less than that of hiring a seasoned worker (even if unskilled). Our youth are more distractible with other commitments, some more important like a secondary education and others less so like drinking at the pub with friends. While the minimum wage might prevent income depression for the general workforce, compelling employers to pay at a rate of five pounds rather than four-and-a-half, it will most certainly not make up for the difference between what hiring a youth is worth and what it actually costs.

As Milton Friedman said, employers are not in the business of charity. Minimum wages, merited as they might be, are one of the most regressive laws when it comes to youth unemployment. The beneficiaries of such a law are more likely the children of the educated class who are more likely to present themselves in an employable manner in terms of dress, vocabulary, and overall disposition. They are also more likely to have direct contacts for employment, even for relatively unskilled jobs.

Youth unemployment has corrosive social effects. Unemployment results in youth with nothing better to do taking to the streets, resulting in crime either for money or out of boredom. Youth unemployment also results in a more contracted general labor force in the future. As young citizens who need employment are left to rot, they stand far more vulnerable to becoming discouraged in the future and hence becoming entirely unemployable, resulting in increased government entitlement outlays and a decreased national income.

Again, it’s not important that youth employment in the absolute be increased. By removing the minimum wage laws for young citizens it is likely that a few who do not need the extra money or want the reduced wages spend more time with their family or studying. The marginal value of an educated student in the aggregate results in a more robust economy, more ready for the skilled jobs necessary in the coming century.

We need to abandon the myth that minimum wage laws prevent exploitation of children. Today, with the information revolution abuse of young workers will take to the social media in a matter of minutes, destroying the name of any employer who dare pay less than competitive wages. On the other hand we need to make it as easy as possible to hire youth – perhaps offer employers tax credits per hire, decreased red-tape, and a sharp decrease in any tax regulation that would make employers unwilling to hire.

Proposals that suggest we need to train our youth miss the fundamental point that most of our youth need unskilled jobs. We’re not talking about the next mathematicians. The relentless free- market certainly ought to be regulated and protected, as is done in OEDC countries today, but not in a way that it cripples that whom it claims to protect.

Even as a fierce liberal I stand that minimum wage laws are among the most regressive and anti-poor legislation. Let’s move around the mountain and realize that the orthodoxy of regulation and protection will be its own undoing, let’s protect liberalism from itself. 

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