Monthly Archives: February 2013

What’s Wrong With Minimum Wage Laws? Everything!

2/27/2013  Last week’s article concerned what is perhaps the most devastating unforeseen consequence of minimum wage laws, their effect on teenage unemployment, especially black teenagers.  This week we look as some of the false assumptions people make when they support minimum wage laws.

A few years ago, Governor Richardson said about raising New Mexico’s minimum wage, “It’s just good economics.”  Unfortunately, most people agree with him. Of course, most people who support minimum wage laws do not actually employ anybody themselves.  It’s easy to be generous with somebody else’s payroll.

While economics is not a strong suit for most of us, I think the average person, if they think about minimum wage laws, will conclude that such laws are NOT good economics.  Let’s look at the assumptions behind minimum wage laws, most of which people don’t know they are making, and all of which are wrong.

Assumption number one: Poverty can be fixed by passing a law. If this were true, Haiti could become prosperous by passing a high enough minimum wage, and Mexico could eliminate our illegal immigrant problem if they would just pass a high enough minimum wage, and all their workers would stay home.. A moment’s reflection, and most people see this as the silly idea it is.

I call it Camelot thinking. As Lerner and Loewe wrote in their wonderful musical, Camelot, it was against the law for rain to fall before sundown, or for the snow to surpass its “legal limit”, etc. How wonderful. Not surprisingly, it was said to be JFK’s favorite musical.

Assumption number two: Employers cause poverty.  The reasoning here is that people are poor because they aren’t paid enough.  Since the employer pays the wages, it is therefore the employer’s fault people are poor. Ergo, pass a law that requires employers to pay more, and if they don’t, put the bastards in jail. There is embedded in this assumption another, very subtle assumption:

Assumption number three: Employers pay wages.  This may be a little hard to grasp, but all the bills a business incurs, e.g. materials, heat and light, taxes, wages, etc., are paid for by the customers.  Start a business, hire a few people, and you‘ll get the point. Most people realize this assumption is false when confronted with the idea that, if the minimum wage is such a good idea, why not raise it to $20 an hour, or $100 an hour? The minimum wage advocate quickly says, “Well, the employers can’t afford that.”  AND WHY IS THAT?

Assumption number four: Low-wage employees need the government’s protection.  The thinking is that low-wage  earners lack the power to do anything about being exploited by their employers. They are VICTIMS in need of the government’s protection. Let me quote what the economist Walter Williams had to say about “exploited” foreign workers, comments just as applicable to domestic workers:

“Some U.S. companies have been accused of exploiting Third World workers with poor working conditions and low wages. Say that a U.S. company pays a Cambodian factory worker $3 a day. Do you think that worker had a higher-paying alternative, but stupidly chose a lower-paying job instead? I’m betting the $3-a-day job was superior to his next best alternative.  Does offering a worker a wage higher than what he could earn elsewhere make him worse off or bettor off? If you answered better off, is the term exploitation an appropriate characterization for an act that makes another better off? If pressure at home forces a U.S. company to cease its Cambodian operations, would that worker be worse off or better off.”   (From his column, Nonsense Ideas,  February 21, 2007)

And, if a minimum wage increase forces a company to lay off workers, are those workers better off or worse off?  Is the government really protecting a worker who would willingly and happily take a job below the minimum wage? (If anybody has a $5 per hour night watchman job, give me a call. I won’t tell a soul.)

Next week: How minimum wage laws violate basic economics.

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How To Increase Teenage Unemployment, Especially Black Teens

2/19/13

How To Increase Teenage Unemployment, Especially Black Teens

Minimum wage increases are making the news again, as our solons in New Mexico debate taking the state level from $7.50 to $8.50, while the President has trumped that by proposing taking the national level from $7.25 to $9.00. When will they ever learn?

It is especially discouraging to see our first black president advocating such nonsense, as it has long been known that minimum wage laws have had an especially ill effect on black teenage employment, as pointed out way back in 1973 by Nobel winning economist Milton Friedman in his famous Playboy interview.  In that interview, Friedman said that before minimum wages began to rise rapidly in 1956, the unemployment rate for black and white teenagers was “about the same“:

“From that day to this, the (unemployment) rates for both black and white teenagers have been higher than before 1956. —The black teenage rate has been very much higher than the white teenage rate, for reasons that are highly regrettable and that we ought to be doing something about: Blacks get less schooling and are less skilled than whites. Therefore, the minimum wage rate hits them particularly hard. I’ve often said the minimum wage rate is the most anti-Negro law on the books”.

That was forty years ago. What has changed?  Nothing.  An article last July 11 noted overall unemployment of 8.2%, teenage unemployment of 24%, and black teenage unemployment of 44%.  Jason Riley, a black writer for the Wall Street Journal editorial page, called Obama’s minimum wage proposal “sadly ironic.”

Obama, who hasn’t hesitated to note race where it may or may not have been important, such as the flap with Professor Gates and the killing of Treyvon Martin, missed an opportunity to raise Hell about a law that has had a devastating impact on black teenagers for over half a century, but, instead, he played to the politics of raising the minimum wage, always a popular move.

He knows the Republicans will go along, because if they don’t, he’ll paint them as being against “the poor“, lackeys of “the rich”, etc.  Plus, on this issue the Republicans are no damned better than the Democrats. The minimum wage was raised in both Bush Presidencies and the Gingrich Congress of 1996. Still, I’ve often wondered why the Republicans have never made the disparate racial impact of minimum wage laws an issue.

I wish somebody would.  This self-inflicted tragedy has been going on way too long.

The solution to the general problem of teenage unemployment is very simple: Minimum wage laws, since we’re always going to have them, should apply only to full-time workers over the age of 18.  For these under-18 jobs, it would also be nice if all withholdings were waived, e.g. FICA, State Unemployment, etc., which would make it nice and simple for employers to hire kids part-time, and at a higher wage, too.

I think as responsible adults, we owe it to our kids to make getting their first jobs as easy as possible. Early work experiences are as educational, maybe more so, than time spent in the classroom.  I still remember my first job, way back in the ‘50s.  I worked a few hours a week for Milt Cohen, owner of the Walgreen Drug Store. I learned about being on time. I learned about using a squeegee to clean windows.

I still use a squeegee, and I’m always on time. (I occasionally FORGET to show, but when I do show, I’m on time.)

Peter Burrows

NEXT WEEK: What’s wrong with minimum wage laws? Everything