Jewish World Review March 23, 2005 /12 Adar II, 5765
Minimum wage, Maximum folly
Senators Edward Kennedy, D-Mass., and Rick Santorum, R-Pa., both
introduced proposals to increase the minimum wage from its current $5.15 an
hour. Sen. Kennedy's proposal would have raised the minimum wage to $7.25 in
three steps over 26 months, while Sen. Santorum's would have raised it to
$6.25 in two steps over 18 months. Two weeks ago, both measures failed
passage in the Senate.
Sen. Kennedy said, "I believe that anyone who works 40 hours a
week, 52 weeks a year, should not live in poverty in the richest country in
the world," after telling fellow senators that minimum wage workers earn
$5,000 below the poverty line for a family of three. Sen. Santorum said, "I
feel very comfortable that our proposal keeps the balance between the
ability of lower-skilled employees to enter the work force at a wage in
which they are compensated for the skills they bring to the job."
The idea that minimum wage legislation is an anti-poverty tool
is simply sheer nonsense. Were it an anti-poverty weapon, we might save
loads of foreign aid expenditures simply by advising legislators in the
world's poorest countries, such as Haiti, Bangladesh and Ethiopia, to
legislate higher minimum wages. Even applied to the United States, there's
little evidence suggesting that increases in the minimum wage help the poor.
Plus, according to the Bureau of Labor Statistics, only 2.2 percent of
working adults earn the minimum wage.
The crucial question for any policy is not what are its
intentions but what are its effects? One of its effects is readily seen by
putting yourself in the place of an employer and asking: If I must pay $6.25
or $7.25 an hour to whomever I hire, does it make sense for me to hire a
worker whose skills enable him to produce only $4.00 worth of value per
hour? Most employers would view doing so as a losing economic proposition.
Thus, one effect of minimum wages is that of discriminating against the
employment of low-skilled workers.
For the most part, teenagers dominate the low-skilled worker
category. They lack the maturity, skills and experience of adults. Black
teenagers not only share those characteristics, but they are additionally
burdened by grossly fraudulent education, making them even lower skilled.
Bureau of Labor Statistics unemployment data confirms the
economic prediction about minimum wage effects. Currently, the teen
unemployment rate is 16 percent for whites and 32 percent for blacks. In
1948, the unemployment rate for black teens (16-17) was lower (9.4 percent)
than white teens (10.2 percent). Plus, black teens were more active in the
How might we explain that? How about arguing that there was less
racial discrimination in 1948, or back then black teens were more highly
educated than white teens? Of course, such arguments would be nonsense. The
fact of the matter is that while there was a minimum wage of 40 cents an
hour prior to 1948, it had been essentially repealed by the post-World War
II inflation; however, with successive increases in the minimum wage, black
teen unemployment rose relative to white teens to where it has become
permanently double that of white teens.
If the minimum wage law has these effects, then how does it pass
political muster? The current Social Security debate over private accounts
gives us a hint. In the political arena, you dump on people who can't dump
back on you. Few politicians owe their office to the youth vote. Despite the
"concern for the children" malarkey they spout, it's voting age adults to
whom politicians are beholden. It turns out that adults benefit from the
discriminatory effects of minimum wages, and older adults benefit from
Social Security intergenerational transfers.
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