The minimum wage law is a snare and a delusion. It preys upon the weakest economic actors in the land. Before the advent of this pernicious law way back in the 1930s, the unemployment rate of whites and blacks, young and old, was about the same. There were no marked differences regarding joblessness for any of these categories. Nowadays, the unemployment rate of teenaged blacks is quadruple, yes, quadruple, that of middle aged whites.
Why is this?
The law is an unemployment law, not an employment law. It mandates that anyone with a productivity level below that stipulated by law will be unemployable. If the law requires a wage of $10 per hour, and your productivity is only $7 hourly, then any firm foolish enough to hire you will effectively lose $3 every 60 minutes. Either they will not hire you, or, they will go broke if they do that once too often. Raising the level from $10 to $15 will just mean that those with a productivity of $13, who could have worked with a law requiring salaries of $10, can no longer do so.
The minimum wage law is thus not a floor which when raised boosts compensation to labor. No, rather, it is a high jump bar that the worker needs to exceed in order to get a job in the first place. The higher is it raised, the harder it is to jump over, into employment. If it really were floor, undergirding wages, why not boost it to $100 per hour, or better yet $1000? Then, we’d all be rich. Why not cut off all foreign aid to poor countries, and tell them, instead, to institute a minimum wage law, and keep raising its level until national poverty were ended?
Bernie Sanders wants to raise the minimum wage level to $17 per hour. That is more than double the present federal level of $7.25. Does he want to move black teen unemployment rates up from quadruple that of middle aged whites to quintuple? To sextuple? To septuple levels? (True confession: I had to look up these words). Presumably not. What, then, is the explanation for his stance? Economic illiteracy.
All too often, research on this matter focuses on increases in the minimum wage level. Who cares about mere increases? The entire rotten law ought to be repealed, and salt sown where once it stood. For at any level, it makes it impossible for those whose productivity is below the level stipulated by law. Card and Krueger [1] would disagree. They found that a slight increase in its level in New Jersey did not lead to more unemployment of the unskilled than in neighboring Pennsylvania, which did not raise its mandated legal wage. But their statistics were proven to be unreliable, and, in any case, we should be comparing the law with its absence, not with a slightly higher or lower level.
Fire burns people. It does so at 150 degrees Fahrenheit, as well as at 152 degrees. Suppose a chemist cannot discern much of a difference between these two temperatures, and then concludes that there is nothing wrong with burning people. What should we say to him? We should aver that there is something seriously wrong with his analysis. We should respond to the Cards and Kruegers of the world in much the same manner.
[1] Notable supporters of minimum wage legislation are Card and Krueger, 1994, 2000. For critiques, see Block, 2001; Burkhauser, Couch and Wittenburg, David, 1996; Burkhauser and Finnegan, 1989; Gallaway and Adie, 1995; Hamermesh and Welch, 1995; Neumark and Wascher, 2000
Walter E. Block is Harold E. Wirth Eminent Scholar Endowed Chair and Professor of Economics at Loyola University New Orleans.
READER COMMENTS
steve
Oct 29 2024 at 4:52pm
I think it will hard to make a cause and effect claim about minimum wage laws and black unemployment as it would require looking at working conditions and employment in the years before the law was passed. For example, UE was 2-3 times higher for black men during the Great Depression so depending upon when you want to start your numbers the ratio of black to white UE was actually higher before the law was passed than after.
Wouldn’t you also want to look at income and mortality numbers? Blacks had lifetime earnings at about 30% of white in the early 1900s while (from memory) its about 65% now. Child mortality and overall life expectancy was much lower than whites. So if you want to choose a date when the black UE was about the same as the white UE then I think it should be clear blacks died at a much younger age and their kids were much more likely to die, at least partially due to their low wages.
I also dont know how you separate out the major shifts in employment with the huge shift from agriculture to industrial jobs and the migration to the north.
Steve
Jon Murphy
Oct 30 2024 at 7:27am
Two quick things:
First, the causal relationship is pretty well established, both in theory and reality. In the US and rest of the world, negative effects of minimum wage (including lower working conditions) tends to fall hardest on minorities.
Additionally, the explicit goal of minimum wage in the US when created was to keep blacks, immigrants, and women from competing for jobs against men.
So, we have a causal relationship as indicated by the evidence and by the people who created the program.
Second: I’m not convinced that working conditions changes the story. Two reasons. First, minimum wage depresses working conditions. Second, as evidenced by people’s choices, they prefer a job with poor conditions to no job at all. I don’t see how low wages causes blacks to die sooner than no wages.
David Seltzer
Oct 30 2024 at 11:22am
Walter: Not only is it an “unemployment law,” It’s a law that make’s it illegal to hire someone for less than the minimum wage. So the well intentioned deep thinkers, like Bernie, interfere with a private employment arrangement wherein both agree to a wage. Statism writ large.
Monte
Oct 30 2024 at 12:33pm
The bottom line is that minimum wage legislation (MWL) is a zero-sum proposition. For every minimum wage increase, there is a corresponding decrease in total job welfare in the form of lost hours, benefits, or some other employment factor. MWL persists because voters support (and thus government values) redistribution towards low-wage workers.
Craig
Oct 30 2024 at 3:18pm
I don’t support any minimum wage legislation but if it is to exist it should at least exist at the state level and NOT the federal level of government
SK
Nov 2 2024 at 9:25am
We are in the 21C so those who wish to cite reasons of implementation of min wage way way back provide nothing by so stating as it has to do with min wage in the here and now.
I would like to see no min wage law, but do wonder if some differentiation should be the case with regard to small vs large biz enterprises. Most large companies when min wage was increased complied and with little effect to workers; in fact some wholeheartedly sign on which prob means they could easily afford to pay it and maybe had workforce where virtually none earned below the newly established min wage.
On the other had smaller enterprises do feel the hurt of a min wage and react in ways cited by any number of critics of the min wage. So, perhaps here smaller enterprises should be exempt from a min wage requirement and of course I note what size limit is set is a value judgement, but doing so, hopefully, is better than an all or nothing approach that seems to be the case today with results that may be seen to some and maybe not to others by across the board min wage set too high.
Andrew M
Nov 3 2024 at 10:21am
I think minimum wage laws are bad policy too, but why on earth would you compare “the unemployment rate of teenaged blacks” with “that of middle aged whites” rather than with that of teenaged whites?
I would expect (but please correct me if I’m wrong) that the unemployment rate of teenaged whites is higher than that of middle aged whites, simply because teenagers have acquired fewer skills and are not yet such reliable employees.
To be clear: I am not denying that the unemployment rate of teenaged blacks is higher than that of middle aged whites; last time I looked, it was. My complaint: why make life easier for your intellectual opponents?
Craig
Nov 3 2024 at 11:23am
“but why on earth would you compare “the unemployment rate of teenaged blacks” with “that of middle aged whites” rather than with that of teenaged whites?”
Well the MW debate extends beyond race as well. Nevertheless the MW as a % of the median wage isn’t really altogether that relevant to the labor force as a whole and overall we see unemployment at 4% right now. That doesn’t mean that the MW doesn’t work on the margin. Indeed, it does and it shows up in much higher youth unemployment rates which you then compare to the unemployment rate as a whole.
What’s interesting is that in the face of higher youth unemployment numbers, many on the left simply do not want to blame the MW. But they do see the effect and they turn around and adopt government programs to try to counter the ill effects of MW policies:
https://seattle.gov/human-services/services-and-programs/youth-and-young-adults/seattle-youth-employment-program
https://does.dc.gov/service/mayor-marion-s-barry-summer-youth-employment-program#:~:text=Barry%20Summer%20Youth%20Employment%20Program%20(MBSYEP)%20is%20a%20locally%20funded,the%20private%20and%20government%20sectors.
As Pierre Lemiuex often quips: Dirigisme begets dirigisme.
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