Chicago City Wire

A lack of jobs and a failure to invest in low-income neighborhoods means that young people who lack a high school degree in Chicago are being pushed to the back of the job line.

Some, however, believe that higher minimum wages are harmful to the less-educated between the ages of 16 and 30. Despite a rise in employment over the last several years, it seems that available opportunities have not increased.

Economist Jeffrey Clemens of the University of California at San Diego conducted a study, "The Minimum Wage and the Great Recession: Evidence from the Current Population Survey," building upon his previous research of the effects of higher minimum wages.

He found that the number of young people who had a job declined to from 40 percent in 2006 to 28 percent in 2010. According to Clemens, raising the minimum wage reduced employment among 16- to 30-year-olds who didn’t hold a high school degree by 5.6 percentage points during that period.

Speaking to the Chicago City Wire, Clemens said he was worried about how Chicago’s youth labor market will evolve if the country is hit by an economic downturn over the next few years.

“This is one of the core messages of my research: the minimum wage’s effects on employment will be particularly large over periods during which productivity growth is slow and demand for the goods and services that low-skilled workers produce is low,” he said.

Even though Clemens states that Chicago’s minimum wage of $10.50 is high by national standards, it may well be less binding than the $7.25 federal minimum wage would be in relatively rural areas.

“Further, the Chicago metropolitan area is quite diverse and its $10.50 minimum wage can have very different implications in its high-income wards than in low-incomes ward,” he said.

According to the Brookings Institutions, by some metrics Chicago has the greatest racial gap in youth and young adult employment opportunities across metropolitan areas. The Great Cities found that in 2014, around 45,000 20- to 24-year-olds were out of school and out of work in Chicago. That figure grew to 150,000 once the whole Chicago metro area was included.

Clemens said ensuring a decent standard of living for relatively low-skilled individuals is an important social priority and that measures should be put in place to determine how it can be financed. He adds that high minimum wage rates have two important shortcomings.

“The first is that they risk failing to achieve their goals if they significantly reduce employment opportunities,” he said. “The second is that they attempt to shift the financing burden onto a relatively narrow group, namely the employers of low-skilled workers.”

If ensuring a decent standard of living is truly a social priority, then society as a whole can commit to financing it by using tax dollars to supplement low-skilled workers’ wages, as is the case through the Earned Income Tax Credit, added Clemens.

Research shows that, in addition to spreading the financing burden across society as a whole, the Earned Income Tax Credit would expand low-skilled individuals’ employment opportunities.

“My policy preference would thus be to maintain a relatively modest minimum wage and to supplement it through the Earned Income Tax Credit to reach the living standard we want relatively low-skilled workers to enjoy,” Clemens said.