WASHINGTON, December 18, 2014 — Currently there is a major effort underway to raise the minimum wage. On the federal level the minimum wage is $7.25 per hour, although the President has raised it to $10.10 per hour for federal contracts. Many states have much higher minimums with some as high as $15 per hour.
The pros and cons of minimum wage increases have been widely debated, but there is one other consideration that has not been discussed. That is, the minimum wage may contribute to increases in teenage crime.
The arguments for raising the minimum wage are straight-forward. President Obama says that anyone working full time should earn a livable wage. He cites studies that indicate the benefits to the economy of raising the minimum wage. These include, he says, increasing the purchasing power of those earning the minimum, stimulating the economy because of this increased consumption and the addition of jobs.
Most economists do not share that view. Most believe that an increase in the minimum wage will cause an inflationary impact especially due to the rippling effect of wage increases. This means that a worker with some experience who currently earns $10.25 per hour is worth $3 more than a newly hired worker earning the minimum $7.25. So if the minimum is raised to $10.10 as the President has done on federal contract, the experienced worker will demand $13.10. The result is increased cost for business which always leads to higher prices.
These mainstream economists also believe that the minimum wage will not add any jobs but will reduce the number of jobs available to unskilled workers, as business replaces higher cost workers with capital investment. Perhaps we will order our burgers by using a touch screen instead of through a person. This causes unemployment which helps explain why the teenage unemployment rate is 18% today. The wage increase would also cause the dollar menu to become the $1.39 menu.
But the increase in the unemployment rate results in another negative. That is, there will likely be a significant increase in teenage crime. This is the finding based on a study by Sara Heller of the University of Pennsylvania.
Heller studied about 1600 Chicago high school students who were enrolled in high violence Chicago schools. During the summer, half were given jobs at minimum wage, along with some counseling. The other half were unemployed. For 13 months following the program she tracked the rate at which the participants were arrested for violent crimes.
She found that the teenagers that were employed were 43% less likely to be arrested for a violent crime than the unemployed youths. Heller noted that violent crimes are mostly committed by individuals who have a deficit in “self-control, social information processing and decision-making” which are all skills learned through the workplace experience.
In states where the minimum wage has been raised to $15, teenagers will see far fewer job opportunities available to them, particularly for summer employment. The Bureau of Labor Statistics reports that less than one third of teenagers aged 16-19 are employed. In 2000 the number exceeded 45%. Perhaps this helps to explain the increase in teenage violence.
It would seem that considering we have problems with teenage violent crime and with the way that police respond to the criminals, it would seem that we should do whatever is reasonable to reduce the teenage crime rate. Something as simple as not raising the minimum wage, would increase employment opportunities, especially for teenagers, and tend to reduce violent crime.
Since raising the minimum wage is so popular with the compassionate public who believes that this action is necessary to help low income people, the minimum will likely continue to increase. But before we take that action, we should consider all of the effects, both positive and negative.