As explained in Chapter 6 a minimum-wage law distorts the market for low-wage labor. To reduce this distortion, some economists advocate a two-tiered minimum-wage system, with a regular minimum wage for adult workers and a lower, "subminimum" wage for teenage workers. Give two reasons a single minimum wage might distort the labor market for teenage workers more than it would the market for adult workers.

A labor market is considered to be in equilibrium when the supply of workers is equal to the demand for workers, resulting in an 'equilibrium wage' where there is no excess supply or demand for labor. In an ideal scenario, this equilibrium wage is determined by the intersection of the labor supply curve, representing workers who are willing and able to offer their labor at various wage levels, and the labor demand curve, reflecting employers' readiness to hire at different wages.

However, the introduction of minimum wage laws can lead to market distortion. If the minimum wage is set above the equilibrium wage, employers may find it unprofitable to hire as many workers as they would have at the lower wage. This can lead to a surplus of labor, or unemployment, as there are more people willing to work at that wage than there are jobs available.

Consequently, some economists argue for a differentiated approach to minimum wages for different demographics, such as teenage workers versus adult workers. This aims to reduce the distortion in various segments of the labor market by aligning the minimum wage more closely with the productivity and demand characteristics of each group.

Teenage unemployment refers to the situation where young workers, typically those between the ages of 16 and 19, are unable to find employment. Various factors contribute to teenage unemployment, but the enactment of a uniform minimum wage is a significant factor. As argued in Step 1 of the solution, the skill level of teenage workers is usually lower than that of older workers, leading to a mismatch between their productivity and the imposed minimum wage.

This mismatch can price teenagers out of jobs, as employers may prefer hiring more skilled adult workers at the set minimum, or they might invest in labor-saving technologies. Hence, teenage workers face a higher risk of unemployment due to a potentially inflated minimum wage that does not align with their employment value. Additionally, work opportunities for teenagers are limited to certain industries or roles that might become less accessible when subjected to the same wage floor as more experienced workers.

To combat this, some economists suggest a 'subminimum' wage for teenagers, which would be lower than the adult minimum wage, in the hopes of offsetting the disproportionally high unemployment rate within this age group.

Wage elasticity of demand measures the responsiveness of employers to changes in the wage rate. When demand is elastic, a small increase in wages could lead to a significant reduction in the quantity of labor demanded. Conversely, inelastic demand implies that wage changes have little effect on the quantity of labor employers are willing to hire.

In the context of teenage workers, as presented in Step 2 of the textbook solution, the demand for their labor is considered to be more elastic than that for adults. This greater elasticity reflects that employers can more readily substitute teenage labor with other options such as adult workers, technology, or even outsourcing. An increase in the minimum wage that surpasses the equilibrium for teenage labor could result in a substantial drop in demand for teenage workers, as it becomes more cost-effective for businesses to seek alternatives.

Understanding wage elasticity is essential for policymakers who contemplate changes to minimum wage laws. If the demand for the labor of certain groups is highly elastic, setting a uniform minimum wage without considering these differences could lead to unintended negative consequences, such as job loss within these groups, which in this context refers to teenagers.