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Economy, Bureaucracy, Minimum Wage Hikes Sink Federal Teen Jobs Program

Adam Summers
September 29, 2009, 9:51pm

A federal teen jobs program has not fared well, according to a recent Associated Press article. Almost one-quarter of the 297,169 youths who participated in the $1.2 billion Workforce Investment Act summer jobs program for teens, which was a part of the administration's economic stimulus programs, did not end up getting jobs. Youth unemployment rates for those aged 16 to 24 years soared to 18.5% in July, the highest rate in that month since 1948.

Of course, the recession played a large role in teen unemployment, as layoffs or the desire to earn some extra family income led adults to compete with teens for low-paying jobs.

Massachusetts officials said they had trouble placing teen job-seekers with private employers, many of whom opted out of the program to hire experienced older workers or young college graduates. Labor officials in other states said such problems were common.

"It's kind of hard to convince companies to hire teens for summer jobs when they're laying off their adult workers," Mary Sarris, who heads the North Shore Workforce Investment Board in Salem, Mass. "This is the worst summer we've ever seen."

This begs the question: Why did the administration think it was a good idea to fund an expensive jobs program for teens when adults are struggling to find work?

Economic conditions were not the only problem, however, as the program was also hampered by bureaucratic missteps.

In Pennsylvania and Connecticut, bureaucratic holdups kept some young workers from entering training programs until July, cutting into summer job opportunities, the AP's review found. In California, which received about 16 percent of all funds nationwide, less than half the participants in all stimulus-funded youth job programs reported getting jobs by the end of July, the most recent month for which state and national youth employment figures are available.

"Things are still totally chaotic with this program," said Rachel Gragg, federal policy director for The Workforce Alliance, a Washington-based group that advocates for more national job training funds. "In many communities they will tell you that they are still struggling to understand where the money is and where it is coming from."

[. . .]

In November, California auditors cited a litany of financial problems at the Los Angeles County Department of Community and Senior Services, including overpayments to its director and $1.27 million in questionable costs that the agency still hasn't fully accounted for.

The agency received nearly $15 million in stimulus funds for youth jobs training this summer. Officials said the director's salary had been adjusted, other accounting problems corrected and about 5,400 participants found jobs.

"There are so many passthroughs before this program actually turns into money that helps the population it's intended to help that it's almost criminal," said Laura Chick, who was appointed inspector general by Gov. Arnold Schwarzenegger to watch over California's stimulus funds. "If the local board isn't watching what they're doing, even less money is getting to where it's supposed to go, especially if it is being siphoned off to pay for administrative expenses."

Even setting aside economic conditions and bureaucratic snafus, there is another factor in the jobs program's failure that the AP article neglected to explore: the minimum wage. While the recession is obviously the principal reason for rising unemployment, the minimum wage is a contributing factor, particularly in the restaurant and retail sectors. In a little over two years, the federal minimum wage has increased nearly 41%—from $5.15 an hour to $5.85 in July 2007, to $6.55 in July 2008, and to the current $7.25 rate in July 2009. Some states have increased it even higher.

An increase of $2.10 an hour might not sound like all that much, but it adds up in industries with large numbers of low-skilled workers, and that artificial 41% increase in a portion of a business's labor costs can be the difference between staying in business and having to close down and shed even more jobs. This is especially true during a recession when the business cannot simply pass on the cost increases to consumers.

While the minimum wage might benefit those who are able to get such jobs (and who don't have their hours cut by business owners trying to offset the added costs), what is not seen is all those who are laid off or who cannot get a job in the first place because of the minimum wage. A person who has skills worth, say, $5 or $6 an hour now has to compete with those worth $7.25 an hour for the same scarce jobs. Since the employer has to pay at least $7.25 an hour anyway, why would he ever hire the $5 an hour worker? The minimum wage has made that (potential) worker practically unemployable.

The minimum wage may sound good to those who only consider some of its benefits—and none of its costs—but it is just another barrier to work. (The same goes for mandatory occupational licensing requirements.) Such barriers to work should be eliminated in the name of individual liberty regardless of economic conditions, but their abolition is even more important during tough economic times, when increases in productive employment and entrepreneurship are needed to spur economic growth once again.

Other Resources:

» "Let's end poverty by decree! 'Living wage' laws defy basic economics and hurt intended beneficiaries" (published in the Orange County Register)

» "Minimum Wage Hike Could Hurt Working Poor More Than Help" (published in the Los Angeles Business Journal)

» "Minimum Wage, Minimum Opportunity" (Libertarian Perspective column)

» My previous policy study on occupational licensing, Occupational Licensing: Ranking the States and Exploring Alternatives, which includes a ranking of the 50 states by how many jobs they require licenses for.


Adam Summers is Senior Policy Analyst


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