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Minimum questions about minimum wage

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Wednesday, Feb. 27, 2013, 9:00 p.m.
 

President Obama wants to raise America's minimum wage to $9 per hour. That's a 24-percent increase from the current minimum wage of $7.25. Mr. Obama believes a higher minimum wage will help poor workers.

Here are some questions to ponder before throwing support behind the president's proposal.

What would you do if the price of your favorite beer rose by 24 percent? Would you buy less of that beer? Would you consider buying some other brand of beer instead? If your answer is “yes,” isn't it also true that employers — forced to pay their low-skilled workers 24 percent more — will hire fewer such workers? Might employers try to get by with fewer workers, perhaps by substituting machines (for example, automatic checkout lanes at supermarkets) for flesh-and-blood workers?

What would you tell a worker who lost her job because of the rise in the minimum wage? Would you tell her that she should be happy because, although she is unemployed, if she could find a job, her hourly wage would be $1.75 higher than she was earning at the job she lost?

The national minimum wage in America was designed, in the 1930s, by Northeastern industrialists to bankrupt upstart factories in the South. These Northeastern industrialists understood that the chief competitive advantage enjoyed by their newly emerging competitors was access to low-wage labor. The Fair Labor Standards Act of 1938 was meant to strip Southern firms of this advantage by forcing Southern factories to pay wages higher than were justified by market conditions in the South.

Do you think a piece of legislation with such unsavory origins — origins that had nothing to do with raising the wages of America's lowest-paid workers and everything to do with protecting from competition the profits of rich Northerners — is a trustworthy foundation to be relied upon today to raise the wages of America's lowest-paid workers?

In the late 1940s, the unemployment rate of black teenagers in America was lower than the unemployment rate of white teenagers. In the 1950s, the minimum wage began to rise steeply and, along with it, so did the unemployment rate of teens. But the unemployment rate of black teens rose much faster than did that of white teens.

Thomas Sowell, Walter Williams and many other economists argue that the minimum wage is to blame. The arbitrarily higher wage creates a surplus of low-skilled workers; there are more people willing to work at the minimum wage than there are jobs at that wage. Because people are prohibited by law from competing for jobs by offering to work at wages lower than the minimum, employers have an overabundance of applicants for each entry-level job that needs to be filled. Employers thus tend over time to make “safe” hires — teens from prosperous suburbs with decent schools, rather than teens from the inner city with lousy schools.

Today, the unemployment rate of white teens is 20.8 percent. That of black teens is 82 percent higher, at 37.8 percent.

Do you think black teens' much higher rate of unemployment today than that of whites is explained by racial discrimination? Is such discrimination worse today than it was in 1948? Or might a better explanation for the changing employment fortunes of black teens be that the minimum wage prices more black teens than white teens out of jobs?

Donald J. Boudreaux is a professor of economics at George Mason University in Fairfax, Va. His column appears twice monthly.

 

 
 


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