Diana Furchtgott-Roth: Thank Congress for teen unemployment

As teens finish the school year, they might be getting A's, but the job market gets an F. The unemployment rate is 9.7 percent, the teen rate over 26 percent, and the economy created a meager 41,000 private sector jobs last month.

Even the best students will find it hard to get jobs, missing their opportunity for spending money as well as lifetime lessons in workplace responsibility. Plus, the Labor Department is discouraging unpaid internships.

One culprit is the U.S. minimum wage, which rose in three steps from $5.15 an hour in 2007 to $7.25 in 2009, one of the first laws passed by the new Democratic Congress in 2007.

As the adult unemployment rate rose by 5 percentage points from 3.9 percent in May 2007 to 9 percent in May, the teen rate soared by more than 10 percentage points, from 15.9 percent to 26.4 percent.

Professor David Neumark of the University of California reviewed more than 100 studies on the effects of the minimum wage on employment in a 2007 paper titled “Minimum Wages and Employment.” His results? The minimum wage has “negative employment effects, both for the United States as well as for many other countries,” and the minimum wage especially hurts teens and low-skill workers.

The recently passed House of Representatives tax extenders bill, up for a vote in the Senate next week, allocates $1 billion over 10 years for youth summer jobs programs. But, even if passed, it will come too late for the summer of 2010.

Here's another approach, one that wouldn't add to the deficit. Why not expand the federal minimum wage exception for teens? Federal law allows employers to pay teens $4.25 an hour for 90 consecutive days.

However, employers have to show that teens don't displace others, always difficult when unemployment nears 10 percent. Moreover, if state minimum laws don't include teen exceptions, teens have to be paid regular wages.

Minimum wage laws in California and New York don't mention teens. These states' 2009 teen unemployment rates (33 percent and 27 percent respectively) were higher than the U.S. average, then 24 percent.

In contrast, Maryland exempts teens for the first 90 days, and its unemployment rate was 22 percent, still high, but lower than average.

In addition, the Labor Department has been making it harder for teens to get unpaid internships. Now the internship has to be “educational,” whatever that means, and it must benefit the student and not the employer.

These new rules, possibly a response by the department to union pressure, illustrate bureaucracy run amok. What if the student starts out benefiting, and then gets bored? Conversely, what if he becomes so experienced that he ends up doing useful work that benefits the employer? Must his internship end?

The regulations will have a chilling effect on students who want to intern for businesses. The Labor Department's Nancy Leppink said, “If you're a for-profit employer or you want to pursue an internship with a for-profit employer, there aren't going to be many circumstances where you can have an internship and not be paid and still be in compliance with the law.”

In other words, interning for Habitat for Humanity is fine, but watch out for that internship with New Century Capital Partners.

Teens, just because no one's employing you, all is not lost. You can start your own summer business.

There's a need for many services, including computer assistance for the middle-aged and elderly; yard work; dog walking and plant watering; tutoring; coaching a favorite sport; and repairing bikes. If your business grows, you could employ your friends — as long as you pay them minimum wage.

Examiner Columnist Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute.

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