Who are the workers and employers then that will be most affected by increases in minimum wages? The workers affected most are the low skilled or unskilled workers; the employers are those who depend primarily on this type of labor.

Increasing the minimum wage will force employers in these industries to pay more than they would otherwise pay. How will these employers react to this situation?

First they will attempt to adjust their production process so as to use more of other factors where the return per dollar spent is higher. If they can substitute the use of machinery for these unskilled workers at lower cost, they will do so. If they can use skilled labor more effectively than unskilled labor, they will do this.

So the effect will be that less unskilled labor will be used and more capital equipment and skilled labor, whose wage rate is not directly affected by an increase in the minimum wage, will be employed.

While certainly being of benefit to the unskilled workers who maintain their jobs at the higher minimum wage, the increase in the minimum wage is the cause of serious unemployment among these unskilled workers.

The employers whose costs are increased by minimum wages tend to be in the less industrialized parts of the country in the South and West, rather than the North and East. Increases in the minimum wage render them less able to compete with industries in other parts of the country and retards their economic development relative to other parts of the country.

Industries in the North and East then benefit at the expense of industries in the South and West. The owners and suppliers of capital machinery benefit at the expense of labor; and skilled unionized labor benefits at the expense of the low or nonskilled labor.

The group of workers which is probably hurt most with respect to declining employment opportunities as a result of the minimum. wage is the teenage group. Many of these are entering the labor market for the first time with perhaps nothing more than a willingness to work. They have to be trained on the job and sometimes even taught the rudimentary habits of punctuality and dependability at some cost to the employer.

At a sufficiently low wage it is profitable for an employer to provide work experience to some of these teenagers. At higher minimum wages this becomes too costly to employers and they become less willing to hire teenagers.

The work of myself and my late colleague, Gene Chapin, in this field, has been primarily concerned with measuring the impact of the minimum wage on teenage unemployment, and I would like to discuss with you some of the implications of our findings.

Referring to the printed testimony that has been distributed and particularly to the table at the end of this paper, if you would like to turn to it I am going to be discussing some of the figures that are contained in the table.

First in row 1 of the table I have broken down the teenage population into seven categories; namely, all teens, white teens, nonwhite teens, white males, white females, nonwhite males and nonwhite females.

We are interested not only in the aggregate impact of minimum wages on all teenagers but also in the differential inipact of minimum wages on these different sociological groups.

Row 2 indicates the participation rate for each of these groups which is the percentage of the population in each of the respective groups which is either employed or seeking a job. By multiplying the participation rate by the population, I get the civilian labor force for each group. And this is in row 3 of the table.

In rows 4 and 5 respectively, the labor force is divided into the number employed and unemployed based on figures supplied by the BLS for the first quarter of 1972.

The unemployment rates prevailing in the first quarter of 1972 are listed in row 6 and are calculated by dividing the total number unemployed in row 5 by the civilian labor force in row 3 for each group.

The essence of my work has been to calculate estimates of the elasticity of unemployment with respect to changes in the minimum wage. These elasticities which are listed in row 7 indicate the percentage increase in the unemployment rates-already expressed as a percent that we would expect to result from a 1-percent increase in the minimum wage.

These elasticities are representative of my empirical work in this area over the past 5 years and are based on data from the midfifties until 1972. These elasticities are dependables as indicated by a wide range of statistical tests.

Given, then, the reliability of these elasticities, what are the implications for teenage unemployment of raising the minimum wage from $1.60 to $2 per hour?

For all teens this would result in an increase in the unemployment rate from 18.1 to 20.6 percent; for white teens from 15.8 to 17.7; for nonwhite teens from 37.9 to 47.4; for white males from 16.2 to 17.5; for white females from 15.3 to 17.5; for nonwhite males from 31.1 to 40.5; for nonwhite females from 48.5 to 59.4.

These differences are noted by comparing rows 6 and 8 in the table. The differential impact of the minimum wage falls most heavily on nonwhites.

How many teenagers in each group would be thrown out of work as a result of an increase in the minimum wage from $1.60 to $2 per hour? This question is answered in row 9 where the numbers are expressed in thousands. My best estimates are that this legislation would reduce the number of jobs for teenagers by 1.67 million.

White teens would lose 1.26 million: nonwhites 0.4 million. White males would lose 0.7 million; white females 0.57 million. Nonwhite males would lose 0.21 million jobs; nonwhite females 0.20 million jobs.

In column 10 I estimate the unemployment rate that would exist for each group of teenagers if the minimum wage were increased to $2.50 per hour. While I have not listed the number of teenagers that would lose their jobs as a result of this action the results are even more disastrous.

The unfortunate circumstance surrounding this situation is that those groups that tend to gain from minimum wage increases are those who have the most effective political voice; namely, highly industrialized industries and unionized workers in the North and East.

Those who tend to lose the most; namely, small businesses which use unskilled labor in the South and West, and the unskilled and nonunionized labor, do not have as effective representation.

I would urge that the social effects of this legislation be considered. Under effective minimum wages, many unemployed and unskilled teenagers are prevented from obtaining the training which would make them more productive workers because they are too costly to be worth hiring.

When hired, even at a low wage, as a delivery boy, dishwasher, stock boy or elevator operator, the teenager learns the rudimentary virtues of punctuality, good work habits, cooperation with fellow workers, and concentration on a job for at least 2 hours between coffee and meal breaks.

Employers will not voluntarily provide expensive supervisors to socialize employees who are too costly to be worth the effort. The failure to socialize unskilled teenagers is part of the reason for the rise of barbarism in ghettos.

It is preferable that parents do the job, but when they fail and the schools fail, employers will still take on the task if the teenager is not price out of the market by minimum wage laws.

But since in many cases it is not profitable to hire a teenager even at the existing minimum wages, the unemployed teenagers turn to vandalism, attacks on teachers and police.

To the extent that the minimum wage creates unemployment among minority group teenagers, it inevitably will exacerbate the social unrest in urban ghettos.

With these social implications in mind, I would recommend reducing or removing the Federal minimum wage for teenagers.

Thank you.

[The table referred to follows:]

EFFECT OF S-1861 ON TEENAGE UNEMPLOYMENT RATES (ADDED PERCENTAGE POINTS)

Note: Model assumes average hourly earnings for nonfarm workers increase annually at a 6-percent rate. It also calculates only the loss in employment from extending the minimum wage to State and local employees.

The CHAIRMAN. A couple of questions, Doctor.

The table in your statement comes to the conclusion that this would be, given the terms of the bill, 1861, this would be the extent of unemployment, new unemployment among teenagers.

Dr. ADIE. These figures indicate the amount of new unemployment that we could expect from a minimum wage of $2 as applied to teenagers.

The CHAIRMAN. I see. Does this

you in your paper anywhere say what you judge would be the net reduction in employment that would follow this particuar minimum wage increase to $2?

Dr. ADIE. For all teens?

The CHAIRMAN. Unemployment.

Dr. ADIE. I am sorry?

The CHAIRMAN. The net employment figures. You have given the teenage employment figure in terms of new unemployment. I just want to know how many jobs, really, are going to be eliminated.

Dr. ADIE. I have given a figure for teenagers. I do not have a figure

The CHAIRMAN. I just want to know how this relates to the total employment and unemployment picture. In other words, if 1.67 million teenagers lose their jobs as you say because of raising the minimum wage to $2, does this mean that those jobs, that is a net loss of job? Dr. ADIE. You mean how many of these jobs would go to nonteenagers, if any? Is that your question?

The CHAIRMAN. That is part of it, yes.

Dr. ADIE. Yes; I don't have an estimate for that.

Senator TAFT. Mr. Chairman, if I might try to clear this up; would that be includ' d, is that a factor in, say your column 4, white male, 695?

Dr. ADIE. No.

The CHAIRMAN. No; that is before the application of the $2 mini

mum.

Dr. ADIE. I don't have an estimate for the number of jobs that might be created for nonteenage groups. My study, the work that I have done which has not been published, examining the effect of minimum wages on adult males, females, and nordic groups indicates that there is no change in the unemployment for these groups as a result of changes in the minimum wage, and so my judgment on that particular question would be that there would be no substantial change in the number of jobs for other labor force groups.

However, the evidence that I have been able to accumulate is not as strong as the evidence indicating the effect of minimum wages on teenagers.

The CHAIRMAN. When you say yours is an empirical study, what do you observe? You said a 4-year empirical study.

Dr. ADIE. The—I have conducted a number of empirical studies, and they have been statistical studies to estimate the relationship between unemployment for the-for various teenage groups and the minimum wage, and the statistical estimates have been for the relationship between teenage groups and the minimum wage.

The CHAIRMAN. Well, what periods are we talking about here that you observed?

Dr. ADIE. The period I observed has been from 1954 through to 1970.

The CHAIRMAN. What specific periods where teenagers were brought under the minimum wages?

Dr. ADIE. 1954.

The CHAIRMAN. What group was brought in under the law in 1954? What group of teenagers? What employment, rather, that included teenagers was brought in under the law in 1954?

You said

Dr. ADIE. Yes; I don't believe we have been talking about excluding teenagers until fairly recently. There have been exclusions with respect to certain types of work.

The CHAIRMAN. No, no, we are talking about inclusions. Your studies show that, when they were included in the minimum wage that they lost employment? Isn't that what it is all about? Isn't that what you are here to talk about?

Dr. ADIE. Yes.

The CHAIRMAN. What periods where teenagers were included and in what kind of jobs did you observe this reduction in employment following the inclusion, minimum wage, new inclusion

Dr. ADIE. 1954 to 1970.

The CHAIRMAN. Who was brought in under the law in 1954? That is what I am trying to see, what you observed, what industry, what area of activity where newly covered teenagers were brought into the minimum wage?

Dr. ADIE. My study covers all teenagers, not newly covered teenagers.

The CHAIRMAN. What ones did you look at particularly?

Dr. ADIE. All teenagers and then broke them down by sociological groups. There was no breakdown corresponding to newly covered industries.

The CHAIRMAN. What new industries were covered in 1954?

Dr. ADIE. The industries that have always been covered under the minimum wage.

The CHAIRMAN. What other years did you use?

Dr. ADIE. I used monthly data for all years, 1954 to 1970, inclusive. The CHAIRMAN. I have to labor through this because I am trying to understand what you are trying to tell us.

You are saying that if we bring a new element of coverage under minimum wage to teenagers, they are going to lose employment that they now have; is that right?