Lower Minimum Wage for Students?

Blog, Poverty, Ben Eisen

Interesting editorial in the National Post today, criticizing a new government program that will, essentially, pay businesses to hire summer students. The Post rightly criticizes this subsidy as a silly way to boost employment for students.  The editorial makes a number of good points and correctly asserts that it is unfair to force other taxpayers to subsidize summer jobs for students on top of the money they pay to subsidize those same students’ education.

However, the policy alternative offered by the editorial writers also seems problematic. The authors suggest exempting students from all minimum wage laws. This sounds like a great idea as it would make it a lot easier for students to find jobs in the formal economy and develop skills and experiences that would help them get started in their careers. There may, however, be negative unintended consequences for unskilled workers in the economy who are not students. These people would be put in the position of having to compete with students for jobs- but with the price of non-student labour kept artificially high. Unskilled student labour would drift to an equilibrium price – probably below the legal wage floor- which might make it impossible for comparably skilled  non-students to compete since they would still be subject to the minimum wage.

I’m sympathetic to the Post’s argument, but am concerned that the creation of a large class of workers who are not subject to the minimum wage would harm other unskilled workers.  We’d be better off reducing minimum wages right across the board, while providing direct financial assistance to the neediest families through beefed up earned income tax credits or similar policy instruments.