The Danger of the Minimum Wage

In his 2013 state of the Union address President Obama basically stated that the American system is broken and that it is his responsibility to lead the government charge to fix it.  The president said, “It is our unfinished task to restore the basic bargain that built this country – the idea that if you work hard and meet your responsibilities, you can get ahead, no matter where you come from, what you look like, or who you love….It is ourpresident unfinished task to make sure that this government works on behalf of the many, and not just the few; that it encourages free enterprise, rewards individual initiative, and opens the doors of opportunity to every child across this great nation of ours.”   The president may have no equal when it comes to using lofty words and soaring rhetoric, but what are the results exactly?  In the same speech where the president says he wants to see more job creation in our country and a thriving free enterprise system, he goes on to advocate/demand that we have a rise in the federal minimum wage to 9 dollars an hour.

Aside from the irony of a president saying he is for free enterprise and then in the same speech talk about raising the minimum wage, we already know that state and federal minimum wage laws are about government telling individuals how much a task of minimum wagelabor in their very own business is worth.  In other words, government is deliberately interfering in the labor market to get results other than what is produced in a free labor market.  However, as I said, let us put that aside for a moment, and handle the argument that my critics and proponents of a minimum wage will make.  First, they will say how terrible anyone is who is against a minimum wage, after all what is wrong with guaranteeing the average Joe more money? Next they might say employers, out of greed, may not give a fair or decent wage unless government forces them to.  These are both reasonable points of view. After all it is altruistic to want people to have more money.

However here at the Fortes View we like to dig a little deeper and look at historical data and facts and see what that tells us about what is happening or could happen with the public policies of today, especially amongst segments of our society that can be harmed the most by bad public policy.  So it is in this regard we look at the historical effects of the minimum wage on the low skilled and minorities.

It seems to me that the folks who advocate for a minimum wage, the folks who do so out of the goodness of their hearts, not the calculating political operatives who do so as a payoff to possible union allies, do not often fully flush out what the full effects of the policy are.  After all, while Congress and many state legislatures mandate how much an act of labor is worth, those same government bodies do not mandate that a worker actually be hired or keep his/her job at the hirer rate.  If a minimum wage raises an employees pay level to a point where it exceeds his/her productivity, employers will more than likely make adjustments, eliminate positions or not hire in the first place.  These types of adjustments would produce gains for some workers but those gains would be at the expense of other workers.  In other words higher skilled workers benefit, lower skilled workers, whose population is made up with a lot of folks with limited education and minorities, would imagessuffer.  They become less employable and opportunities to upgrade their skills through on- the-job training decrease.  Black youth unemployment is skyrocketing  under the nation’s first black president.  Black youth, for a multitude of reasons, historical and otherwise, make up a large portion of our country’s lower skilled workers.  However, did you know that in 1948 black and white unemployment rates were just about equal?  Walter E. Williams professor of economics at George Mason University wrote a terrific book called, “Race & Economics; How Much Can Be Blamed on Discrimination?”, and he states that in 1948 Black youth had an unemployment rate less than whites 9.4% compared to 10.2% from that time until mid 1960s and Blacks were just as active in the labor force as whites. Since the 1960s,  labor force participation rates and the employment rate for black youth has fallen to what it is today, which in some cities is has high as 60 percent.  Does racial discrimination account for this trend?  I do not think so. One would have to believe that blacks faced less discrimination between the 1940’s and 1970 than they do today.  Were blacks better educated than whites during this time? Of course not. I say while there are probably many factors we cannot ignore, one of those is reduced employment opportunities as a result of minimum wage laws.

In this day and age, minimum wage laws offer another danger to low skilled workers. This danger comes in the form of employers due to the increased labor cost looking for substitutes to the labor market.  These substitutes come in the form of automation and outsourcing. We already see this with automatic dishwashers replacing hand washing, automatic checkout lines in stores, self services gas stations, and fast food restaurants, and of course companies locating jobs overseas.  The theory behind minimum wage laws is that they are effective antipoverty policy, but the facts paint a much different picture, a summary of the last two decades of research from economists at the University of California-Irvine and the Federal Reserve Board found that 85 percent of the most credible studies on the minimum wage point to job loss for less-skilled employees.

The reality is the idea behind the minimum wage is a good and noble one.  If only we lived in world where just saying someone will make x amount of dollars no matter what could guarantee prosperity for all. The reality is that this type of legislation is the result of decisions that are made out of emotion instead of fact-based practicality.  The minimum wage law has imposed harm on the most disadvantaged members of our society.  The absence of work affects things beyond the size of our wallets and bills; the lack of work means the lack of the sort of lessons young people learn to make them more valuable and successful workers in the future, the lack of work can affect the family dynamic and self- esteem– this is especially true for vulnerable segments of our society, like black youth, 70 percent of whom are growing up in single parent households.  Again proponents of minimum wage will say they do not want workers stuck in low paying jobs or to be economically exploited by employers.  But they are willing to do this at the expense of low skilled workers having no jobs at all.  The problem is not underpaid jobs/worker, but the fact that there are under-skilled workers in the first place.  Developing policies to address this fact is where our energies should be, not making ourselves feel better with lofty words and policies. That is just selfish.

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One thought on “The Danger of the Minimum Wage

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