Cascade Report Finds Long-Term Negative Impacts on Youth from Oregon’s New Minimum Wage Policy

Cascade Policy Institute released a report that has foreboding implications for young people in our state. The report was commissioned after passage of SB 1532 earlier this year, which phases in large increases in Oregon’s minimum wage. The law mandates minimum wages by 2022 of $14.75 in the Portland metro area, and $13.50 and $12.50 respectively in other metro areas and rural areas. These rates must be adjusted after 2022 by any increases in the Consumer Price Index.

Authored by Oregon economist Randall Pozdena, Ph.D., Minimum Wage: Its Role in the Youth Employment Crisis analyzes the history, theory, and empirical impacts of minimum wage regulation. It focuses on youth aged 16 to 24 because they are most likely to be affected by minimum wage increases as new entrants into the labor force. The report uses data and statistical techniques that, for the first time, allow measurement of how the impact of an increase in the minimum wage evolves over time, not just in the period immediately after the increase. In addition, it allows prediction of the interaction of the minimum wage shock with employment, wages, and labor force participation over time.

“This report confirms ominous long-term negative consequences of minimum wage increases, not just for those currently 16 to 24 years old, but for future potential workers coming into this age group,” said Steve Buckstein, Cascade’s founder and Senior Policy Analyst.

Key findings of the report:

⦁ Increases in the minimum wage significantly depress youth employment and labor force participation. The share of youth employed falls by 3 percent in just the first six months after a 10 percent increase in the minimum wage, and it falls by 6 percent after a year. Similarly, the share of youth participating in the labor force declines by 4 percent at 6 months and 6 percent at 18 months.

⦁ Contrary to the claims of minimum wage advocates that higher minimum wages create a cascade of even greater increases, youth wages only rise by the amount of the mandated increase—and then only for those lucky enough to find a minimum wage job. Collectively for all youth, what wage increases occur are more than offset by condemnation of a large share of youth to a zero wage; namely, to unemployment.

⦁ Even a one-time increase in the minimum wage persistently continues to depress the share of youth who are employed. Specifically, statistically significant employment impacts can be expected to cumulate over time for at least five years into the future. Even seemingly innocuous increases in the minimum wage—such as Oregon’s prior 2002 policy of adjusting for the CPI—can significantly depress youth employment. Since the implementation of that adjustment policy fourteen years ago, the previous 56 percent share of youth employed has fallen to just 46 percent, an 18 percent decline. Thus, it appears that inflexible, automatic CPI indexing is inferior to letting markets set youth wage rates.

⦁ Portland metro area youth likely will suffer the most, with the share of employed youth falling by 30 percent by 2022. Youth in the state’s other metro areas will see a 20 percent decline, and youth in designated rural areas of Oregon will see a 15 percent decline.

Buckstein and Pozdena conclude that “even while bowing to the reality of economic differences between urban and rural areas of the state in its latest minimum wage law, Oregon has made a public policy mistake that predictably will be paid for by many of the state’s youngest current and soon-to-be potential members of the youth labor force.”

The report, Minimum Wage: Its Role in the Youth Employment Crisis, is available http://cascadepolicy.org/wp-content/uploads/2016/12/Minimum_Wage_Youth_Employment_Crisis_2016.pdf.

Founded in 1991, Cascade Policy Institute is a nonprofit, nonpartisan public policy research and educational organization that focuses on state and local issues in Oregon. Cascade’s mission is to develop and promote public policy alternatives that foster individual liberty, personal responsibility, and economic opportunity. For more information, visit cascadepolicy.org.