The MacNeil/Lehrer Report; The Sub-Minimum Wage

ROBERT MacNEIL: Good evening. Senator Charles Percy today urged fellow senators to create a lower-than-minimum wage to help employment of idle teenagers who, he said, were turning to drugs and crime because they`re so desperate. The Illinois Republican is one of a number of congressmen sponsoring legislation creating a sub-minimum wage to combat unemployment chronic among all teenagers, and most acute among minority teenagers. The latest unemployment figures show a national rate of 7.3 percent, 19 percent for teenagers as a whole, and over 35 percent for minority teenagers. Supporters of a two-tier wage argue that the present minimum wage of $3.35 an hour discourages employers from hiring teenagers.

As a candidate last year, Ronald Reagan said the minimum wage has caused more misery and unemployment than anything since the Great Depression. That assumption is hotly contested by the labor movement and others. And yes- terday, the Reagan administration itself seemed less sure. Labor Secretary Raymond Donovan told Senate hearings the administration still favors the idea in principle, but has not yet decided whether to support any legislation. Tonight, the sub-minimum wage. Will it help solve teenage unemployment? Jim?

JIM LEHRER: Robin, the minimum wage law came into being under President Roosevelt in 1938. It was a post-Depression move aimed partly, at least, in cutting down the competition between youths and adults for scarce jobs. Legislative historians say the argument for it was toe many employers are hiring kids because they`ll work for less. If forced to pay a minimum wage, employers would be more likely to hire adults who need the jobs more. Interestingly enough, it`s the same argument in reverse that is now being used by some against the sub-minimum wage: that it will take jobs away from adults and give them to young people. An estimated 10 1/ 2 million of today`s workers are employed in jobs which pay no more than the minimum wage; one-third are teenagers. There are currently five different sub- minimum wage bills before Congress, all designed to put even more teenagers to work. The leader of the legislative effort and author of one of the five is Senator Orrin Hatch, Republican of Utah, Chairman of the Senate Labor and Human Resources Committee. Senator, first let`s go through the highlights of your particular legislation. It would permit employers to pay young people 75 percent of the minimum wage. What age group is involved? What restrictions are involved?

Sen. ORRIN HATCH: It would be those between ages 16 and 20, and it would be to try and get especially these young minority youths an opportunity to get out of the ghetto, and have the self-esteem that comes from working.

LEHRER: There`s a six-month time limit on these kinds of jobs, is that true?

Sen. HATCH: Yes, during the six-month training period, as an incentive to get small businesses to hire these young people, and to help the small businesses, too, so they can hire these young people and to create more jobs in America, we`ve provided that during that first six-month training period that they would pay 75 percent of the prevailing minimum wage, and of course, we believe it will create literally hundreds of thousands of jobs over the years.

LEHRER: What happens at the end of the six months?

Sen. HATCH: Well, at the end of the six months, they will have to pay them the minimum wage or better. And I believe that they will be willing to do that once they`ve been trained, and once they become a stable part of the work force.

LEHRER: What, if anything, is there to prevent an employer from just firing the first group at the sub-minimum wage, and hiring a second group to take over?

Sen. HATCH: We`ve provided in the bill, and I think in the three bills that have been filed, basically that the employer cannot do that. There are sanctions in the bill. Nor can he do some other things. But basically, he has to give the young person an opportunity to continue working, and not replace him with another one at a lower level just because he might save some money.

LEHRER: Are you concerned at all that employers might replace adult workers who are being paid the minimum wage with the sub-minimum wage youths?

Sen. HATCH: Well, I think Professor Hamermesh`s study is one of the best studies on that, and yes, we are concerned about that.

LEHRER: We`ll be hearing from the Professor in a moment.

Sen. HATCH: I think he`ll make it very clear that there are, you know-- there are more opportunities to hire an awful lot of young people for every adult who might be displaced. I don`t subscribe to the theory that there`s a finite number of jobs. In other words, the purpose of the youth opportunity wage differential is to create more jobs. Give these young people an opportunity to work, and bring them out of the ghetto instead of sitting in the ghetto in what I call the new form of slavery -- the rest of their lives on welfare at the expense of everybody else without ever having the opportunity to see what it`s like to work, and to produce, and to become productive members of society. I think that, frankly, we`ll create jobs. And if we didn`t create jobs by the youth opportunity wage differential, then it wouldn`t be valid. It would not be a good approach. But it will.

LEHRER: Senator, you`ve been quoted as saying that to not pass this bill would be criminal. Why?

Sen. HATCH: Well, when you have 36 percent of your young blacks who are called structurally unemployed young people who have nowhere to turn, nowhere to go, who sit in that ghetto, and they get into trouble. And it`s not just young blacks. A month ago it was 19 percent of youth across the board. And if you take minority youth in general and youth across the board, that`s a horrendous difficulty. They`re the future of America. If we don`t try something new, and give them the chance of working, and having the joy and the self-esteem that comes from working, we`re just writing those kids off, and, like I say, the new form of slavery without any opportunity whatsoever. I think we have an investment in those kids. I think if we can create jobs through some innovative ways, we ought to forget the old ideas of the past and try and create some new ways that will help to expand the work force, and get more people working. Because we`re going to have those kids on welfare the rest of our lives ?-- I think, demeaned human beings -- because we haven`t been willing to try something new.

LEHRER: Senator, thank you. We hear the other side of the legislative argument, now, from Congressman Harold Washington, Democrat from Chicago. He`s a member of the House Education and Labor Committee. Congressman, why are you opposed to the sub-minimum wage?

Rep. HAROLD WASHINGTON: The word "criminal" was used, and I think it would be more apropos to say it is criminal to hold out to unemployed youth across this country -- particularly in the inner cities where jobs are wanted so drastically -- to hold out that there is a possibility through some technical or mechanical contrivance such as this that jobs will be created. The basic question is, who wants this legislation? Well. I don`t see manufacturers beating down the doors in support of it. I don`t see large commercial enterprises crying for this sort of stuff. Who supports this kind of legislation are the fast-food operators, the restaurantiers, and some of the hotel and motel operators. And they would simply get a windfall if you had a sub-minimum wage at present. I hear no clamor for it otherwise. I don`t see any possibility-- I know of no cogent, credible study which indicates that by a sub-minimum wage of 75 percent of the minimum, that you will create jobs. And that`s really what we`re talking about. What jobs will be created, for example, on the south and west sides of Chicago by virtue of a sub-minimum wage? I don`t know of any that will be created.

LEHRER: What would be the harm in trying the experiment that Senator Hatch has?

Rep. WASHINGTON: Well, the harm in trying is that you get a windfall, as I said before, and also what it will do -- clearly will do -- is, within the inner cities of this great United States, it will compete the young people against their elders. That it will do. And competition being what it is. and business being what it is, obviously, it will opt for a lower wage. That`s what will happen.

LEHRER: You mean, compete-- it will just go-- you believe, then, that they will replace adults who now have jobs?

Rep. WASHINGTON: To a certain extent, that will happen. But there`s simply no evidence whatsoever, even remotely, presented to assume that jobs will be created by virtue of a sub-minimum wage. And if jobs are not created, what are we talking about?

LEHRER: Well, you heard what the Senator said -- that to not try something, not to try this or something else, condemns these young people to a new form of slavery.

Rep. WASHINGTON: Well, that may be true, too, but then on the other hand, we have an administration here which is phasing out, for example, public service jobs, and is phasing out vocational-- not vocational-- it would cut 25 percent of vocationaled subsidies, and is phasing out job-training programs to a certain extent. That`s what seems to me to be condemning youth to perpetual slavery.

LEHRER: You just don`t think the jobs are there?

Rep. WASHINGTON: Think? I know they`re not there. I live there. I`m not a visitor on the south side of Chicago. I live there. There aren`t any jobs there. They`ve moved to the suburbs. They`ve moved to the Sunbelt. Many other jobs have been taken up by the fact that women in large droves have entered the market. There is a quality or factor of discrimination which overrides this whole business if you`re talking about inner-city em- ployment. For example, in my city right now, there are young people who are getting summer jobs lined up. But they`re the young Irish kids in the city of Chicago who are going to go through the machinery of that city -- the political structure of that city -- and work in the park district, and work in various other places. Those jobs to a great extent will be shut to young blacks; so there`s discrimination and job movement from the inner city to the suburbs and to the Sunbelt. But creation of jobs? It is a hoax of the highest order to indicate even remotely that sub-minimum wages will create jobs. There have been any number of tests. For example, we had the Youth Entitlement Programs, and they gave up to 100 percent. The government was prepared to pay up to 100 percent to some of these businessmen or factories if they would take on young people. They wouldn`t take them on to a great extent in the private sector. They`re no jobs out there to be had through this mechanism.

LEHRER: Thank you. Congressman. Robin?

MacNEIL: That`s the political argument. The issue is also hotly debated among the experts the politicians turn to for advice -- the economists. Daniel Hamermesh. Whom Senator Hatch referred to a moment ago. is a research associate with the National Bureau of Economic Research. He has studied what effect the youth sub-minimum wage would have on the adult labor market. First of all. Professor Hamermesh. the Congressman just said this is a hoax of the highest order to pretend that a sub-minimum wage would create jobs, and reduce teenage unemployment.

Prof. DANIEL HAMERMESH: That`s completely in disagreement with all the studies that have been done in the past five years. There has been a tremendous agreement among studies using data over time, looking at wages at a point in time, suggesting unanimously that for every 10 percent higher minimum wage we put into effect, you lose 1 percent of teenage employment. Thus, a sub-minimum wage ?-- lowering the teenage minimum wage rate -- would create jobs for teenagers. There`s no doubt in my mind, looking at a mass of studies, that`s the case.

MacNEIL: Can you explain what the reasoning is behind this? What would motivate employers to create jobs? They would have to be creating jobs. These are tasks they would like performed, but feel they can`t afford to have performed now because the wage rates for unskilled workers are too high? Is that what it is?

Prof. HAMERMESH: That`s correct. Several things are happening. First of all. as a result of lower cost per unit of output, some of that cost decrease would be passed on to consumers, and the scale of output would increase. More goods being produced means more labor being hired. Secondly, because the cost of hiring low-skilled young labor goes down, eventually less capital will be used; more labor would be used. You`d create jobs that way, too. So there`s both a scale-of-output effect, and a substitution away from capital and toward lower-skilled labor.

MacNEIL: But isn`t that asking the economy to turn around from the direction it`s moving in irresistibly, which is towards more capital- intensive, higher-technology things which use less labor?

Prof. HAMERMESH: It`s not moving around completely. It`s changing the path ever so slightly. We`re not talking about a very large program, even with the unrestrictive sub-minimum. We`re talking about slight change, only.

MacNEIL: What differential do you favor? Is Senator Hatch`s 75 percent of the present minimum wage enough?

Prof. HAMERMESH: I`m not sure what the appropriate differential is. The problem I see with the Senator`s bill is not the size of the differential. but rather this maintenance of effort after six months, and the notion that the person must be paid the full minimum wage after six months. I don`t think a person`s productivity can be brought up from $2.5 I an hour to $3.35 an hour within six months in most cases.

MacNEIL: What period would you put on it?

Prof. HAMERMESH: I would put no period at all on it. I would let the market work. Let the people be upgraded to whatever wage above S2.5I they would settle at.

MacNEIL: Now, your principal focus has been on what would happen to adults if there were a sub-minimum wage. What would happen to them?

Prof. HAMERMESH: Unfortunately, unlike the area of looking at the number of teenage jobs created -- where there is massive evidence -- in this area there`s very little evidence. I believe my own piece, unfortunately, is the only one. That piece suggests that for every three to nine teen jobs created, you would lose one adult job.

MacNEIL: That means that some employers would fire an adult and hire a cheaper teenager?

Prof. HAMERMESH: They wouldn`t fire the adult. What they would do is not hire the adult, and hire teenagers instead when the lime came to do some hiring. Layoffs would be very unlikely in this case.

MacNEIL: I see. Since black teenage unemployment is so high -- minority teenage unemployment -- how in particular, if at all. would this measure help them?

Prof. HAMERMESH: My guess is the help for minority teenagers will be somewhat less, unfortunately, than it would be for white teenagers. The reason being, because of discrimination, the wages they can command --- minorities can command -- are below those commanded by the whites. And thus more whites are clustered just below the current minimum wage. Unfortunately, it would be less effective for minorities, I would think, than for non-minorities.

MacNEIL: Well, thank you. Another economist who has studied the teenage unemployment problem is Paul Osterman of Boston University. He recently completed a book entitled Getting Started -- The Youth Labor Market. Professor Osterman, you disagree` with Mr. Hamermesh. Why do you think the sub-minimum wage will not employ more teenagers?

Prof. PAUL OSTERMAN: Well, I think it`s important to understand where the disagreement is. I think that more teenagers will be employed. The question, is does that come from new jobs, or does that come from hiring teenagers instead of adults? That`s one question. The second question is. are these good jobs? Are they jobs that are important to get teenagers into? Let me talk first about the quality of the jobs. The firms that are sensitive to the minimum wage are always low-wage firms offering essentially dead-end employment. These are not jobs that are going to offer training.

MacNEIL: Give an example of a kind of job.

Prof. OSTERMAN: McDonald`s is such a job. Working behind the counter at a retail store is such a job. So that`s one problem.

MacNEIL: But doesn`t that fulfill the need to get a hitherto-unemployed teenager working, and understanding the disciplines of work, and preparing himself for a life of work? Isn`t that one of the arguments?

Prof. OSTERMAN: Virtually all teenagers -- employed or unemployed now --- have had jobs in the past. There are very few teenagers who haven`t had that experience. So the image of a teenager perpetually doomed never to work is not the correct image. The second point I want to make, though, about these jobs is that while new jobs for teenagers will come into existence, the overwhelming effect. I think, will be the displacement of adult workers.

MacNEIL: That`s where you really disagree with Mr. Hamermesh.

Prof. OSTERMAN: That`s right. And let me give you an example. The Manpower Demonstration Research Corporation, which has done a lot of large-scale survey research, recently conducted a large-scale experiment in Detroit and Baltimore. They offered employers 100-percent wage subsidies for youth, with no paper work. MDRC offered to do the payroll, the paper, everything. Of all of the employers that were offered a 100-percent wage subsidy. 18 percent accepted it. Now. that gives you a sense of the number of new jobs that would be created. The employment effect of teenagers -- that is to say. the number of new teenagers who would be employed if the sub-minimum came into existence -- would largely, in my judgment, come not from new jobs, but rather from slowing the hiring of adult workers.

MacNEIL: Is that what happened in those experiments -- that the 18 percent who took the full wage subsidy and hired teenagers did so at the expense of adult workers`?

Prof. OSTERMAN: Oh. there`s no way of knowing that.

MacNEIL: Oh. you don`t know numbers.

Prof. OSTERMAN: One of the problems with the argument about displacement is that there`s no way of observing such an effect because it`s an adult who`s not being hired, as opposed to somebody who is being laid off. But of course, that goes to the problem with enforcing bills for the sub-minimum: namely, there would be no way-- if you were to try to write a bill that prohibited firms from laying off adults, there would be no way to enforce that.

MacNEIL: So if you think this is a lousy idea, what approach to teenage unemployment do you prefer?

Prof. OSTERMAN: Well, I think we have to realize one key thing, and that is, teenage unemployment is always going to be high. It`s simply built into the structure of the labor market. Kids are unstable employees. Firms seek to avoid hiring youths. So a certain amount of high teenage unemployment is inevitable. The real issue, in my judgment, is how to make sure that that teenage unemployment is equitably distributed. That is, to make sure that certain groups -- minorities in particular -- don`t have astronomical unemployment rates. There I think we need to do three things: we need to support CETA training programs. And what I would do -- my personal judgment -- is that the approach is to put more resources per kid into those programs. That is to say, do an intensive job on a smaller number of youths. Secondly, we need to upgrade the quality of inner-city schools, and there`s a lot that could be done. And thirdly, I think we need to maintain a commitment to affirmative action programs and equal employment opportunity. Now, I`ve observed and evaluated a lot of CETA programs. They do things such as provide home care for elderly, teachers` aides, daycare. They perform useful functions; training can take place, they can lead to a useful life. And I think that that`s the way to go.

MacNEIL: Well, thank you. Jim?

LEHRER: Senator Hatch, you of course do not think that`s the way to go, right? How do you answer the complaint from both Mr. Osterman and from the Congressman, that the jobs that would be created -- they even question whether there would be that many new jobs created --- but the ones that would be created would not be quality jobs. They would be dead-end jobs that would lead to nowhere.

Sen. HATCH: Well, if I was a young black kid sitting in the ghetto, and I didn`t have a job, and somehow or other I got a job as a janitor or as a bagboy or a check-out counter man or a retail clerk -- which apparently our one economist didn`t feel was a very good job-- I`d be happy to have a job. I had a young black kid come to me recently. He said, "Senator," he said, "I don`t care if you pay me. Just give me a job and train me." He said, "I`ll make more than the minimum wage once I`m trained." We`ve got to get them jobs. We`ve got to give them the opportunity to work and to be productive in society, and not just write them off as I kind of am getting the impression here that we`re always going to have high unemployment among youth. I remember back in 1955 there was one black youth employed between 16 and 18 for one white youth. Today, it`s about one black youth for every two white youth who are employed. And I think that there`s a definite correlation here. Every time the minimum wage goes up, those who are underskilled. undereducated, untrained, they lose their jobs because people can`t afford to hire them. And we`re not talking about big industry. We`re not talking about manufacturers or big companies. We`re talking about the mom and pop stores -- the small businessmen, the people who really would hire these kids and give them a chance to work because they could afford to do it. That`s where the opportunity really is is in small business in this country. I have to admit that a lot of the big manufacturers are unionized, and very few union workers work for the minimum wage. Last and not least, the reason unions love the minimum wage is it`s a sacred concept, and I think Lane Kirkland testified today on that issue, is because the minimum wage allows them to push up the bottom so that they can then make wage demands at the top where they have a monopoly at the workplace. And it`s been a fiction that`s been used for that purpose. I don`t hear any answers as to what are we going to do for our youth? What are we going to do to help them? And I think it`s about time we started trying some things.

LEHRER: Congressman, how do you answer that? A bad job is better than no job at all.

Rep. WASHINGTON: Yes, but the point is the sub-minimum wage won`t even create the bad jobs. The Senator`s begging the question, and even Mr. Hamermesh and Mr. Osterman admit that they don`t see the possibility of any jobs being created. But there would be competition between the sub-minimum job-holding, job-searching youth, and the adult who holds a job. Now, Mr. Osterman laid out very quickly a mild blueprint which I would assume the President of the United States is looking at. He says, instead of emasculating the CETA program both in terms of jobs and training, beef it up with a solid commitment and some funds to carry it out. Do something about the inner-city schools. And lastly, he suggests that they do something about affirmative action. Now, this administration strikes out on two of those three-pronged suggestions that Mr. Osterman is suggesting. One, they`re opposed to CETA, and in my district, if they phase CETA out. 2100 jobs will be lost tomorrow.

LEHRER: Is there any place those 2100 can go in your district?

Rep. WASHINGTON: There is no place for them to go. There are no training mechanisms for them to go to. Private industry hasn`t put it in effect. This certainly won`t do it, so as 1 said before, the administration is striking out on two of the three programs. Affirmative action, I understand now, they`ve got their axes all put together to go after affirmative action. Oh, I dare say that Senator Hatch might support affirmative action programs since he`s so much worried about the inner-city youth getting jobs.

LEHRER: Senator?

Sen. HATCH: Could I just make one comment? You know, I worked as a janitor. I wasn`t born in a very wealthy family. I was born somewhat in poverty, and if I hadn`t had that job as a-- and one time as a gas-station attendant, another time as a janitor, and I was proud to do that job because it allowed me to finish high school and to go on to college, and to do some of the things that had to be done. I get a kick out of the Congressman indicating that this won`t create jobs. He doesn`t know whether it will create jobs or not. And I know one thing. In this free enterprise system, that`s where the real jobs are. And if we give the incentives to that private sector to create jobs, it`s going to create jobs. The problem is we`ve been stifling incentives as we`ve been imposing tax after tax on the American people for these make-work jobs in the federal government that really haven`t panned out. And I think it`s time we start trying some new ideas. And I kind of get a little upset when I hear nothing but, "Well, they won`t work," when they don`t know it.

LEHRER: Yeah. Robin.`

MacNEIL: Prof. Hamermesh, I know you want to rebut something that was said, but maybe you can do it and answer this question at the same time. If this is such a great idea, why does business appear to be backing off of supporting it? At the hearings that went on in the Senate committee yesterday and today, conspicuous by their absence were the U.S. Chamber of Commerce, who previously supported this idea as I recall, and also such firms as the fast-food chains that are supposed to be the enthusiastic employers of these youths?

Prof. HAMERMESH: I understand that`s a political issue at this point which I think the Senator and the Congressman can discuss better than I. I did want to rebut one thing the Congressman said. I think people get the impression economists disagree about an awful lot of things. I see here tremendous agreement between Mr. Osterman and myself on the fact that there would be jobs created for teenagers. There`s very little doubt in most economists` minds based on all the work that`s been done that that would be the case. I think one has to look at the issue--

MacNEIL: The disagreement is over the quality of the jobs, and whether it would kick adults out of work?

Prof. HAMERMESH: Precisely. That`s where the area of disagreement lies.

Prof. OSTERMAN: Well, there`s also, though, an issue about how significant the minimum wage is in explaining teenage unemployment. One study that Senator Hatch cited yesterday at the hearings argued that were the minimum wage not increased in 1966 -- the coverage not extended in 1966, which was the major development in the minimum wage in the past 15 years -- the unemployment rate of black teenagers would be 30 percent instead of 33 percent.

MacNEIL: Because it covered different categories of workers?

Prof. OSTERMAN: Well, that was the 1966 amendments, but the point is while there may be an employment effect, it`s small relative to the problem. There is no way that-- I don`t think any economist, either Dan Hamermesh or myself, would argue that the dual minimum wage or abolition of the minimum wage is in any way a significant solution to the unemployment problem of minority teenagers.

MacNEIL: Do you have a guess about how many jobs might be created compared to the number of minority kids looking for jobs?

Prof. OSTERMAN: Well, roughly 300,000 jobs might be created.

MacNEIL: Compared with how many might be looking for jobs?

Prof. HAMERMESH: Compared with total youth employment of 10 million. You increase youth employment by about 3 percent.

MacNEIL: Let`s go back to the Senator. Senator Hatch, is it worth incurring what may be the negative aspects of the sub-minimum wage for a 3 percent improvement?

Sen. HATCH: Well, I don`t see any negative aspects, and I think if we could put 300,000 more young people to work in jobs that gave them self-esteem, that that`s worth almost everything. Now, I support the Job Corps program because that`s where we`re training some of these-- some of these structurally-unemployed youth. It`s one of the few federal programs that really has worked to a more-or-less degree. But this program at least could work--- you know, the Job Corps program produces relatively few jobs. If we could create 300,000 jobs, we`d all be whistling hallelujah.

MacNEIL: Congressman Washington, both these economists seem to agree that some new jobs -- perhaps 300,000 -- would be created.

Rep. WASHINGTON: And that`s a slim possibility. But the question then is who would get the jobs, and would the sub-minimum wage people displace, or rather, move ahead of those who would get the minimum wage. That`s the whole issue here. There is simply no evidence-- and I`d like for Mr. Hamermesh to show us where this is taking place. Where has this taken place? Give us an example.

Prof. HAMERMESH: The evidence is by looking at the economy as a whole over the last 25 years, and asking yourself the question, "If we hadn`t had the minimum wage, or rather if we`d had a sub-minimum for youth, what would the employment of youth and adults have been?" I want to ask the Congressman a question, though, if I might.

MacNEIL: Well, I`m afraid there isn`t time to ask it and get an answer because we have just a few seconds left, and I don`t think we can start any further into the discussion. Sorry I have to cut it off there. Congressman Washington, thank you very much for joining us this evening. Senator Hatch, Professor Osterman, Professor Hamermesh, thank you. Good night, Jim.

LEHRER: Good night, Robin.

MacNEIL: That`s all for tonight. We will be back tomorrow night. I`m Robert MacNeil. Good night.