Effects of minimum wage rules on youth employment
How important is the wage level for youth employment? This is a classic question in economics and in practical policymaking around the world. One timely example is the current US debate on increasing the federal minimum wage, where over 600 prominent economists have signed a letter in support of an increase in the minimum wage, including Daron Acemoglu, Kenneth Arrow, Alan Blinder, Angus Deaton, Peter Diamond and Emmanuel Saez to mention a few (Economic Policy Institute, 2014). The Congressional Budget Office in its recent report to the Congress on the effects of the minimum wage concluded that a 10 percent increase in the minimum wage would reduce employment among teenage workers by 0.75 percent. This was computed by setting the elasticity of teen employment with respect to a change in the minimum wage to 0.075 after a careful reading of empirical studies examining the relationship between wages and youth employment (CBO, 2014).