Our main evidence on the extent to which youth
subminimum wages moderate the disemployment effects of minimum wages comes from our standard employment equation augmented to include an interaction between a dummy variable indicating the existence of a state
subminimum wage, and the gap between the effective state minimum wage level and any state subminimum (multiplied by coverage, and divided by the average wage).
In fact, half of all minimum wage and
subminimum wage workers were employed in retail trade.
Employers may currently pay teenage workers as little as $3.62 per hour for up to 6 months under these
subminimum wage provisions.
With the exception of an exemption introduced in 1961 permitting full-time students to be hired at a
subminimum wage of 85 percent of the basic minimum wage (the Student Certification Program), a uniform minimum wage prevails.
This is further confirmed by the higher incidence of tip income among
subminimum wage teenagers: 25% of
subminimum wage earners report strictly positive tip income, versus 11% overall.
The importance of this phenomenon is suggested by the fact that salaried workers are three times more likely to report a
subminimum wage than hourly rated workers, even though (on average) salaried workers have substantially higher earnings than hourly rated workers.
(1) In contrast, numerous states have implemented subminimums for young workers or students in years past, so data on state legislation can be used to examine the effects of
subminimum wage provisions.
"Effects of the Minimum Wage and
Subminimum Wage on Employment and Prices in the Fast-Food Industry." This issue of ILRR.