To begin, I’d like to explain what the minimum wage is. The minimum wage is the lower limit of what employees can sell their labor for, or the lower limit of the price employers to pay to buy labor; they both mean the same thing. When lower limits are imposed on the market, they create what are known as price floors. They create disequilibrium in the market, and create a surplus of unbought goods. Price floors have been damaging every time they have been tried, most notably when they were tried on agricultural products during the Great Depression (Sowell). In short, minimum wage laws are price floors, and carry all the negative aspects of them. They spur unemployment, worsen poverty, and are immoral.
Who Earns the Minimum Wage?
Before discussing the data on minimum wage, I’d like to briefly summarize the 2014 report on minimum wage workers’ characteristics by the Bureau of Labor Statistics. 56% of minimum wage workers are between the ages of 16-24, with 28.8% of those workers being teenagers. 65.3% of minimum wage workers are part time, and 23.7% are non white. Most importantly, only 3.9% of hourly wage earners made the minimum wage, or 1.3 million workers, with 2.99 million workers making at or below the minimum wage. 18.4% of minimum wage workers had a bachelor’s’ degree or higher, 34% had only a high school diploma, and 12.2% did not have a high school diploma, with the rest having a high school diploma and some college. As regards marital status, 65.8% of minimum wage workers have no spouse, and only 22% have a spouse who is present. Unless I missed it, the data does not discuss how many have dependents in this report (Haugen).
Point 1: Minimum wage laws contribute to higher unemployment
After the minimum wage increase in 2009, nearly 600,000 teen jobs were lost according to Forbes. This increase in the minimum wage coincided with the great recession, and the increase in the minimum wage was nearly as damaging to the jobs of young and low skilled employees as the recession itself, with 43% of the job loss in the period of 2006-2009 coming from the increase in the minimum wage (Clemens). This study covers a 7 year period, 2006 to 2012, as opposed to the eleven month period used in the Card and Krueger study, which is important because the impacts of the minimum wage are seen more accurately over a long period of time. According to Preston Cooper at the Foundation for Economic Education, businesses will be hesitant to change their business plans right away, but will make this adjustments over time, meaning that the more pernicious effects of the minimum wage will only be seen later on. There are, of course, other fundamental issues with the Card and Krueger study, including that they only interviewed the surviving views and also did not take into account hours cut and only looked at jobs lost, which is an important distinction, since working for 3 hours at $12 an hour does not make one better off than working 8 hours at $5 an hour. Raising the price of labor makes business owners less inclined to hire, increasing unemployment. This decrease in jobs was not caused by the recession, since there was actually net economic growth during this time, but those affected by the minimum wage were suddenly out of a job. It’s the law of demand. The more something costs, the less people will buy of it (Rothbard). It’s not as if businesses can simply just absorb the cut in profits. Let’s look at an example, comparing Costco and Walmart. They initially look somewhat similar, both are well known retail stores, but that is where the similarities end. According to Bloomberg contributor Megan McArdle, Walmart and Costco employ vastly different numbers of people at vastly different wages. Costco pays their employees an average hourly wage of $21 an hour, according to the Huffington Post, while Wal-Mart pays around $8.80. At first glance, this makes it seem as if Wal-Mart is some evil goliath that oppresses the poor, but one can see that, according to Megan McArdle, Wal-Mart employs a little under a hundred more employees per store than Costco, clearly showing that a lower wage enables Wal-Mart to hire more employees.
Furthermore, the minimum wage is meant to be a way to get a foot in the door, and having a low wage enables many access points into the market, i.e. it enables the maximum number of feet in the maximum number of doors. Henry Hazlitt, best-selling author of Economics in One Lesson, defines wage as the price of labor, and thus since the economic law of demand states that as prices go up, demand goes down, artificially increasing the price of labor decreases the demand for it. In other words, it makes employing unskilled laborers seem like less and less of a good investment as minimum wages go up. Furthermore, Hazlitt states that, “The first thing that happens, for example, when a law is passed that no one shall be paid less than $106 for a forty hour work week is that no one who is not worth $106 a week to an employer will be employed at all. You cannot make a man worth a given amount by making it illegal for anyone to offer him anything less.”
Of course there are those who claim that the minimum wage does not contribute to unemployment, citing Great Britain or Australia as an example. However, further examination of Australia shows that a higher minimum wage does lead to unemployment. Currently, the minimum wage in Australia is $11.23 adjusted for purchasing power parity, and their unemployment rate is 5.6%, according to the Mises Institute. Interestingly enough, the minimum wage is only actually $11.23 for those who are above the age of twenty one, and is only above the minimum wage in the United States if one is over 17, and is only barely over the U.S. wage at 18. Additionally, as shown by the Mises Institute, those counted as unemployed are only those actively looking for jobs and able to start working immediately, and this would exclude those searching for a job but unable to start “working immediately.” The Mises Institute states that if those who are “wanting to work,” meaning those who are looking but cannot start immediately, are counted in the statistic, the unemployment rate rises to 14.3%. And if it counts underemployment, meaning that these people wish to work than they currently do, since higher minimum wages can discourage employers from hiring full time, it jumps to almost 20%, much higher than the 5.6% currently touted by those in favor of a higher minimum wage. Additionally, this high minimum wage also decreases their labor force participation by pushing young people into other pursuits, instead of having them looking for jobs, due to the detrimental effects of a minimum wage. Furthermore, there are only nine countries that have a higher minimum wage than the U.S. when one adjusts for purchasing power parity, and so the minimum wage in the U.S. is not quite as low as it appears.
Raising the minimum wage has the greatest effect on minorities and teenagers, since they are the most likely to be low skilled workers, so their incomes are likely to be the most severely reduced by increases in the minimum wage, since they are the low skilled workers that will be thrown out of a job. Even authors who are friendly to the minimum wage, such as Jerold L. Whitman, wrote that “Because education levels are generally lower among minority youth, they would suffer most” (Whitman 118). Therefore, the very people that the minimum wage was designed to help are going to be those that end up unemployed on account of an increase. Contrary to popular belief, throwing low skilled workers out of job neither helps them gain skills, nor does it increase their incomes.
What is also interesting to note is that the first minimum wage laws were struck down by the Supreme Court and various state Supreme Courts, meaning that the interpretation of the fifth amendment right to due process also provided for the right to freely contract one’s labor (Thies 717). Before the rise of the living wage movement, the initial belief was that it is up to laborers and employers to determine together what an appropriate wage would be. Thus, the courts recognized the destructive power of the minimum wage, even if Chief Justice William Howard Taft dissented otherwise, although the decisions of the courts did not stop progressives from continually trying to pass minimum wage laws, and for reasons that were less than pure, as will be explained in the third section. However, this streak of freedom ended in 1937 with a 5-4 vote in favor of the minimum wage, and in 1941 with 9-0 vote in favor (Thies 720). The tradition of believing in the right to freely contract and that a market wage was a just wage fell by the wayside, swept away by the progressive fervor for “living wages” – even the Catholic Church fell prey to feel good rhetoric used to mask economic harm, as evinced by Pope Leo XIII’s encyclical Rerum Novarum and Father John A. Ryan’s A Living Wage. However, this living wage that was being called was not a subsistence wage, but a decent wage implying that somehow workers are entitled to not just life, but a comfortable and decent life, which is purposefully ill defined (Thies 722). What this means was that Adam Smith’s seminal understanding in The Wealth of Nations, that wages cannot go below a subsistence level, was to fall by the wayside in favor of a living wage that was focused less on life and more on comfort. Even the supporters of the minimum wage implicitly and explicitly recognized that truth, but chose to rail against and demand still higher wages; this outcry against low wages being some sort of capitalist oppression no doubt came from the a revisionist history of the industrial revolution that falsely believed that pre-capitalist paupers were somehow better off starving than they would have been employed for low wages and long hours. The fundamental fact that those poor laborers chose to work in squalor rather than starve shows that this was the best option for them. People do not go out of their way to choose the worse work option if a better one is available, but this is a tract on the minimum wage and not on labor regulations, so I’ll end my digression here. Minimum wages throughout the 1920s were raised specifically for women in many urban areas, citing the need for women to have a living wage and live more than a hand to mouth existence and the desire for a more standardized set of wage rates, as opposed to the wide variations that existed at the time (Thies 726-727). Certainly women with different skill sets, ages, and earning capabilities should earn higher wages, but such things as variables has hardly mattered to those who bemoan discrimination or the caprices of businessmen. Following these minimum wages, employment fell wherever minimum wages were established, but these were blamed on “overall economic trends” and not the forcing up of wage rates, even though “employment of women relative to men fell from an average of 59.7 percent during 1913 to an average of 58.1% during 1914-1915” after in increase in wages “from an average of $11.64 per week during 1913 to an average of $12.17 [per week] during 1914-1915” and employment for women in Washington D.C. fell by 4% (Thies 735-736). From the start, the minimum wage was unable to be a panacea to the ill of low wages, even if success was to be declared in spite of the data. A tradeoff between wages on the one hand and employment on the other, and that is always the tradeoff, should not be the government’s decision to make, on the contrary, it is for employers and employees to determine wage rates. In one analysis of the results of minimum wage laws conducted by Meyer and Wise in 1983, it was found that “23% of people who would be below-minimum-wage workers in the absence of a minimum wage law continue to be employed at less than minimum wages (due to limited coverage and noncompliance), 34% are raised to the minimum, and 43% are unemployed” and that “the lower a person’s earning ability, the higher is the probability that he or she will be unemployed by a minimum wage” (Thies 733). Instead of raising up the poorest members of society, the minimum wage throws them out of employment by the score, or else fails to lift their wages up. It is only the workers who are already skilled enough for a raise who can stay on; the poor or evicted from their only means of self advancement in the market economy. Even those workers who did have their rates raised may find their hours cut, a worsening in work environment, since more money is spent on labor than on workplace amenities, or a reduction in other benefits. This pattern has occurred throughout history, including in 1957, when New York raised minimum wages and found that 87% of businesses reported needing to offset the increased costs by reducing, among other things, working hours or fringe benefits, an example of this being removing coffee breaks for workers (Thies 734). A theoretical analysis in 1980 by Pettengill concluded that “virtually all [low-wage workers] are worse off because of the minimum wage […] Moreover, the worst burden is borne by the least able workers, who are already working as hard as they can and cannot upgrade themselves further” (Thies 734). As a way to boost the conditions of the poor, the minimum wage is not a solution, but rather, a minimum wage is a solution to the problem of having too many workers employed, which is, of course, not a problem at all. Despite legislators’ and proponents’ wishes to the contrary, legal diktat cannot overturn the law of demand, nor can it increase the discounted marginal value product of a low skilled worker.
Now, the United States is not the only country in the world, so perhaps we could more readily elucidate the effects of the minimum wage by looking at the data from other countries. Fortunately, Robert Murphy, in conjunction with Charles Lammam and Hugh MacIntyre of the Fraser Institute, released a report on the minimum wage, specifically looking at the data available from Canada, as well as a discussion of the literature from the United States. In this section, I’m going to look at the data from Canada; I will briefly discuss the debate in American literature in a later section. Now, in the United States, the vast preponderance of studies, well over 100, find that the minimum wage has an elasticity of -.1 to -.3, meaning that an increase in the minimum wage of 10% will result in a 1% to 3% decrease in employment, primarily for low skilled workers (Murphy 18). This result is statistically significant, despite being somewhat small. While there are studies disputing this, the bulk of the data supports this finding and was the universal consensus prior to the “new” research coming from 1990s studies of the minimum wage, including those of Card and Krueger. What does the data from Canada look like? Interestingly enough, the data from Canada provides stronger evidence that the minimum wage has deleterious effects on employment, with the data averaging an elasticity of -.3 to -.6, or that an increase of the minimum wage of 10% leads to a decrease in employment for those workers likely to be impacted by the minimum wage of between 3% and 6% (Murphy 19). Furthermore, the studies that look specifically at those workers who are the most likely to earn the minimum wage found that the elasticity for those workers was between -.45 and -2.0, meaning that for every 10% increase in the minimum wage, employment for those workers whose wages are between the old minimum wage and new minimum wage decreased by 4.5% and 20% (Murphy 18). This data, cited by Murphy and now by myself, comes from the Godin and Veldhuis review of the literature from 2009, which looked at a collection of studies spanning over 30 years of data. In Canada, then, the minimum wage produces more pronounced negative effects, which further supports the traditional theory that the minimum wage has negative effects on jobs, especially for those workers who are likely to be affected by the minimum wage. Why, then, do Canada and the United States have such different results? The answer is that the Canadian data is of higher quality because the minimum wage changes more often in Canada, the minimum wage is done according to province instead of federally, and because the minimum wage covers workers more completely; minimum wage workers in Canada are 7.2% of all workers compared to 3.9% of hourly workers in the United States, or 1.1 million workers in Canada and 1.3 million workers in the United States (Murphy 4-5). While the raw numbers in the United States is slightly higher, the percentage of workers earning the minimum wage is much lower, due, of course, to the United States’ higher population. So, if the Canadian data is of higher quality and shows a more pronounced negative effect, we can reasonably conclude that the minimum wage does have a negative effect on employment, even for modest increases in the minimum wage. While there are Canadian studies that dispute these findings, they are typically few and far between and rely on “simplistic” methods, providing a “weak challenge to orthodox findings” (Murphy 19). On the whole, the Canadian data is absolutely clear that the minimum wage will harm employment, especially for those workers likely to be making the minimum wage.
An interesting phenomenon noted by the economist Joan Monras in 2015 found that when the minimum wage was increased, employment fell more than wages increased, finding an elasticity of -1.2, and that workers actually left the labor market when the minimum wage was increased, meaning that when the minimum wage was increased, employment opportunities were so bad that low-skilled workers actually decided to leave the labor market (Monras 3). The workers who were supposed to be making higher wages ended up leaving the market, harmed by the very policies that were supposed to help them. Moreover, the Monras paper cites a paper by Cadena from 2014, which found that low-skilled immigrant workers actively avoid migrating to nations with high minimum wages, with an elasticity that supports the results of the Monras paper, meaning that minimum wages do prevent low-skilled workers from finding employment (Monras 3). This is something that is interesting, and is missed by most minimum wage literature, especially that of Card and Krueger, what I mean by this is that most minimum wage research looks at the disemployment effects, or, people that are thrown out of work. What is not usually remarked upon, primarily because it is also impossible to quantify, are the jobs that are not created because of the minimum wage, which is still an economic harm, because it is keeping people out of the workforce that otherwise would have tried to find jobs, and, if wages are allowed to exist in equilibrium instead of forced artificially high, would have found a job.
A very telling series of charts (these charts are provided below) from the Bureau of Labor Statistics showed that with every increase in the minimum wage, came an increase in teen unemployment rates, and another set of charts shows that with one exception, every minimum wage increase has resulted in either a higher unemployment rate or has slowed economic growth. Only 1.1% of full time employees work at the minimum wage, and 2.6% of all employees, full and part time, so of course raising it won’t catastrophically impact our employment rate (Haugen). But it will be horribly detrimental to the working poor and teenagers, the most common recipients of the minimum wage.
Point 2: Minimum Wage laws make poverty worse.
Contrary to the position of minimum wage advocates, once the facts are examined, one can see that a higher minimum wage does nothing to alleviate poverty. In 2008, the minimum wage was increased from $5.85 to $7.25 over the course of two years. According to taxpolicycenter.org, before the minimum wage increase, the mean income of the bottom 20% of Americans was $11,656. In 2010, once the entirety of the minimum wage increase was enacted, the mean income of the bottom 20% actually dropped to $10,994, and in 2011 was still below what it was before the minimum wage increase. So the attempt to mitigate poverty ended up making poverty worse! According to Forbes, 60% of the poor don’t work, so raising the minimum wage can have no positive effect whatsoever on at least 60% of the officially poor. Many people look at Costco and say that Wal-Mart could easily afford to pay at those rates, but an examination reveals that to be false. Costco’s target demographic is much different than Wal-Mart’s. Costco attracts upper-middle class college educated shoppers, while Wal-Mart beckons to lower class citizens. Walmart has to pay its employees less in order to offer lower prices to its clientele. Should the minimum wage be raised, it would not only force Wal-Mart to lay off its employees, but it would force their prices higher, hurting those in poverty. By paying a low wage, Wal-Mart can afford to give a good deal of jobs, and offer lower prices (McArdle). If the minimum wage is allowed to continue to exist, it will cause further harm to the underprivileged.
According to economist Murray Rothbard, author of Man, Economy, and State, and For a New Liberty, “If the minimum wage is, in short, raised from $3.35 to $4.55 an hour, the consequence is to disemploy, permanently, those who would have been hired at rates in between those two rates.” This would hit the poor much harder than any other group, since it is the poor who work low paying jobs. This would serve to exacerbate poverty instead of relieving it, by driving the poor from the amorous arms of work, into the arms of big government in the form of welfare handouts, due to the elimination of jobs caused by the minimum wage prohibiting labor contracts for rates under a legislator’s fiat. Moreover, it causes low skilled employees to compete with higher skilled employees, since it makes their wages closer, and when you are paid more money, you are expected to make more value to the employer. Thus the higher skilled employee will get the job, excluding those without skills from the job market and driving them into poverty since they cannot find work. And in regards to Canada, their minimum wage, at least in Ontario, is actually $8.03 when adjusted for Purchasing Power Parity, so it’s barely higher than in the U.S. And in the U.K., it’s only $8.24 when adjusted for PPP, so it’s only a dollar higher, even though on paper it looks much higher. What this shows is that the attempts to mitigate poverty through legislative actions have ended up lowering everyone’s standards of living by increasing the cost of living. To those who claim that raising the minimum wage is good for unemployment, that it will not increase it, and that it will raise people out of poverty, why did the American economy lose 600,000 teen jobs after the minimum wage was increased in 2008 to 2009?
According to the study done by Clemens and Wither, the last minimum wage hike resulted in a loss of employment for 1.7 million low wage workers, or an 8% drop in low wage employment, a clear result of the minimum wage increase, since it priced low skilled or unskilled workers out of the market. Though minimum wage workers make up about 2% of all workers and 5% of hourly wage earners, this employment loss counted for 14% of the total employment loss during the period of increase, which the authors define as 2007-2009. In addition to destroying jobs, it also made college students and others taking internships more likely to work without pay, finding that those workers with at least partial college education were “20% more likely to work without pay than before the minimum wage rose” (Gitis). And the “probability of working without pay (e.g., unpaid internships)” rose by 2% (Gitis). What this means is that not only were jobs lost by the increase, but those people who would have once been paid were now forced to do unpaid labor in the form of internships instead of being to be paid for their labor, a clear harm from the minimum wage and a far cry from increasing spending power for the poorest. As far as wage effects were concerned, the study found that, for the 2007-2009 increase in the minimum wage, weekly earnings declined by, on average, $150 a month. The study accounted for the fact that the overall economy was in a downturn, as the methodology of the paper demonstrates, but I will of course acknowledge how noisy empirics can be, especially in regards to economics.
Moreover, according to economist Thomas Sowell, this will not help those in poverty. He says that raising the minimum wage out of concern for the wellbeing of the poor is misplaced, since most have a computer and washer/dryer. 80% have air conditioning, more than 80% also have a landline and cell phone, and nearly all have a television. Most have a motor vehicle and have more living space than the average European, “Not Europeans in poverty, average Europeans.” So concern for the poor is misplaced, since they are not as poor as one would think.
As an anti-poverty measure, the minimum wage has not helped, and a recent study by David Neumark, of the Federal Reserve Bank of San Francisco, found confirms this finding. As mentioned early, around 60% of the officially poor do not work, with David Neumark listing the number at 57%, meaning well more than half of the poor do not work at all, so the minimum wage cannot help those people. Moreover, according to the Current Population Survey (CPS) with 46% of workers making more than $10.10 an hour, and 36% making more than $12 an hour, meaning the problem is not low wages but low hours, which the minimum wage laws will not and cannot address (Neumark). At $10.10, only 18% of the increase in wages would go to poor families, and 32% of the benefits would go to families with incomes at least three times the poverty line, and as the minimum wage increases, less and less of the benefit goes to the very poorest, with 15% of the benefit going to the poor and 35% going to families whose incomes are at least three times the poverty line at $12 an hour, and 12% of the benefit going to the poor, and 38% going to families whose incomes are at least three times the poverty line at $15 an hour (Neumark). In a study of the recent literature, “there is no statistically significant relationship between raising the minimum wage and reducing poverty” (Neumark). What this means is that as an attempt to raise people out of poverty, the minimum wage is inefficient, and that raising the minimum wage will not and cannot accomplish the purpose its supporters so fervently want it to. The desires and intentions of minimum wage supporters does not alter the reality that it will not lift people from poverty, that market structures cannot be overwritten by the wishes of bureaucrats.
Some of the empirical data on the minimum wage coming out of Canada has seen that the number of Canadians below the Low-Income Cutoff (LICO) threshold increased by 4%-6% for every 10% increase in the minimum wage, in other words, an elasticity of -.4 to -.6, with one specific case being the Sen, Rybczynski, and Van De Waal study from 2011, which covered “Canadian provinces from 1981 through 2004” with the conclusion being that “a higher minimum wage may paradoxically result in a significant negative shock to household income among low income families” (Murphy 18). So, the data suggests that the minimum wage can, and will, end up harming the very people it was supposed to help. If the data holds in Canada and in the US, then we can be reasonably sure that the results are consistent and real, that the minimum wage is going to end up wounding the incomes of the already impoverished.
One point about the minimum wage that is constantly overlooked by both sides of the debate are that those who are working the minimum wage often do not work such low paying jobs for that long. According to a study by Dr. William Even of Miami University of Ohio and Dr. David Macpherson of Florida State University, 65.2% of minimum wage workers moved up the wage scale within one year of taking a minimum wage job (Even 4). What this means is that the concern over those working the minimum wage is misplaced, since they are able to lift themselves out of minimum wage jobs within a year, for the most part; most minimum wage workers are neither poor nor the main provider for their families, but even if they were, they would escape minimum wage jobs rather quickly. Additionally, the study found that when the minimum wage was raised, this process of leaving the minimum wage slowed down for at least two years after the passage of a higher minimum wage, finding that, “A 10 percent increase in the minimum [wage] in a given year reduces the probability of an exit by 7.2 percentage points in the first year after the increase, and by 1.2 percentage points in the second year” (Even 16). By raising the minimum wage, one does not necessarily improve the living standards even for those who keep their minimum wage job, as they are then delayed from getting a raise that they otherwise might have gotten. The introduction of time scales on minimum wage data often tends to exacerbate the negative impacts of a minimum wage increase, and yet are rarely discussed. Another way of putting this data is that “a 10 percent increase in the prior year’s minimum wage leads to a decrease in the current year’s median earning growth of 0.9 percent” (Even 19). This reduction in wage growth means that the income growth made possible by a minimum wage is going to be less than its proponents might argue because those working the minimum wage will find that their wages will increase more slowly compared to if the minimum wage had stayed the same. In short, increasing the minimum wage ends up having mild negative effects on wage growth and the ability to leave the minimum wage workforce, making the positive effects of the minimum wage less impactful than they would have otherwise been. The minimum wage does not exist in a vacuum, separate from the rest of the economic factors that influence a firm’s wage paying decisions but instead are impacted by and impact the rest of the decisions that the firms make.
Another point of note is that according to Bureau of Labor Statistics 55% of minimum wage workers are below age of 24, ⅔ are part time, and 11% of minimum wage recipients are poor. What must be noted is that minimum wage jobs actually are above the poverty line. According to Institute for Research on Poverty, the poverty threshold is $11,720 for one person, for two people it is $14,937, and only for a family with children does a minimum wage job not support you, and even then it’s only by around $3,500, which they will most likely more than make up for in government support. Only 15% of minimum wage workers are supporting themselves and a dependent. And, as economist Mark Wilson put it, “evidence from a large number of academic studies suggests that minimum wage increases don’t reduce poverty levels.” They also make poverty worse by pushing young people, especially poor young people into crime by depriving them of even a limited income. A study by Andrew Beauchamp and Stacy Chan of Boston College found that for every one percent increase in the minimum wage, there was a 1.4-2.8% increase in juvenile drug crime, a 1.8-2.3% increase in property crime, and 2.1-2.4% increase in violent crime. Moreover, they found that the increases in violent crime were concentrated amongst crimes with a clear monetary reward. So they make poverty so much worse for the poor that it drives them towards crime in order to get by. Is this what we should call increasing living standards? Is driving teenagers into a life of crime and ruining their chances of employment how society tries to improve their lives? Is crippling low income communities by raising their barrier to entry how the way to build a productive populace?
Point 3: The minimum wage laws are inherently immoral.
The minimum wage is described by economist Murray Rothbard as “compulsory unemployment.” Meaning that it prohibits prospective employees from offering their services at prices below an arbitrary rate determined by government officials. Raising the minimum wage directly causes unemployment, as has been shown above, and thus it directly benefits those who were able to keep their jobs at the expense of those who lost them or were unable to find a job.
Furthermore, it is immoral in that it explicitly prevents unskilled laborers from competing in a free market. Or as Milton Friedman, a Nobel prize winning economist put it, “It is a mystery to us why a young person is better off unemployed from a job that would pay $2.90 an hour than employed at a job that does pay $2.00 an hour.” Additionally, minimum wage increases disproportionately harm African-Americans. According to Friedman, the minimum wage was raised to $1.00 in 1956, and this increase in minimum wage rates caused an unemployment increase between both white and black teenagers, but more importantly, began to create a unemployment gap between white and black teenagers. Before the minimum wage increase of the 1970’s, unemployment rates were about equal for white and black teenagers. In the 1970’s, unemployment for white teenagers was 15 to 20 percent, and for black teenagers was more than twice as high! This attempt to mitigate poverty ended up causing intense harm to the African American community, and further increases would do nothing but increase the employment gap, instead of fixing it.
Another moral harm of the minimum wage is that it forces unemployment to increase by taking from some to give, unearned, to others. As Nathaniel Branden, former Objectivist philosopher and co-author of Capitalism: the Unknown Ideal said, “Unemployment is the inevitable result of forcing wage rates above their free market level.” This illustrates a clear moral wrong, since proponents of a higher minimum wage are indirectly supporting higher unemployment, and for giving unearned benefits at the expense of those without the skills to earn high paying jobs. An example of giving unearned benefits at the cost of others can be examined by looking at the prices of certain commodities in nations with different minimum wages. By raising the minimum wage, those who are able to keep their minimum wage jobs will make more money, and increase their standard of living, at the detriment of everyone else’s. An example of this can be seen in the price of video games in Australia. In the United States, a video game runs for about $60, or 8.27 hours of work at the minimum age. In Australia, a video game runs from anywhere between $80 to $100, or about 6 hours of work at the Australian minimum wage of $16.88. Meaning that although those working minimum wage in Australia need to work about two hours less, everyone else needs to work more for the same product, a result of a higher minimum wage. This is because when wage rates are artificially inflated, prices tend to increase across the board to keep companies abreast of increased operating costs, so the increase cost of hiring low skilled employees is offset to an extent by the increases in prices of consumer goods. Clearly it raises the standard of living for those making the minimum wage, but not by a great deal, and at the price of everyone else’s. This illustrates how Ayn Rand, the creator of the philosophy of Objectivism and co-author of Capitalism: the Unknown Ideal, said that any increase in the minimum wage would be mostly nominal. This is easily seen in the case of Australia since an increase of around more than double in the minimum wage only required one to work two hours less for a videogame, which means that this wage increase barely raised their standard of living, by giving them more dollars on paper, but almost no increase in reality. Of course, there are other reasons why video games in Australia are more expensive, and it is an extreme example, but even by looking at the cost of Big Macs can we see how it raises prices. In Australia, the Big Mac costs $4.68, compared to $4.33 in the U.S., an increase of $.35. While it is now slightly easier for those in Australia who are older than 18 to get a Big Mac, it is harder for everyone else.
What must also be noted is that many countries that are doing very well right now, including Germany, Norway, Switzerland, and Iceland, have no minimum wage laws and have unemployment rates of 5.2%, 3.4%, 3.1%, and 5.6%, well below what it is in the United States, which has a minimum wage. Additionally, I’d like to state that Dr. Joseph Sabia discovered that minimum wage increases would not stimulate the economy, saying that each 10% increase in the minimum wage comes with a 2-4% decrease in GDP. This is because the same amount of money will be concentrated in a smaller number of hands due to the decrease in jobs brought about by the forced increase in labor costs. And due to what Keynes called the Marginal Propensity to Consume, these people that earn more income will save a larger percentage of their income, and so increases in the minimum wage will actually reduce aggregate demand. And that a study by David Neumark, head of the department of economics at UC Irvine and William L. Wascher of the Federal Reserve found that minimum wage increases led to decreased employment opportunities for low skilled workers. What is interesting to note is that proponents of the minimum wage argue that this will introduce stimulus spending into the economy, but Mike Patton of Forbes accurately points out that if the minimum wage is increased to $15 an hour and no jobs are lost, which economic theory and empirics show to be erroneous to the point of absurdity, the resulting GDP growth would only be around 1.25% of total U.S. GDP, which is rather small increase that would only come as a result of more than doubling the current minimum wage and operating under the incredibly improbable assumption that no jobs are lost (Patton). Thus the pro-minimum wage argument concerning economic stimulus relies on two completely impossible assumptions with the result being less than modest economic growth, and that is only when the minimum wage is more than doubled, such limited theoretical growth would be even more diminutive if it were raised to $10.10. That is to say that the pro-minimum wage argument needs a huge increase in the minimum wage to result in both zero unemployment, which is impossible due to the law of demand, and for all of that additional income to be spent, which is impossible due to the marginal propensity to consume, to get a GDP growth more indicative of a bust than a boom; such an argument to raise the minimum wage cannot stand up to serious scrutiny. Another interesting note is that in order to prevent this GDP growth from being nominal as opposed to being real, one must assume that no price inflation would occur, which is, of course, counterfactual, even if such inflation is usually small.
Furthermore, from the perspective of helping the underprivileged and minorities, economist Thomas Sowell pointed out that when British Columbia increased their minimum wage, “in 1925 there were 55.20 per cent of white employees and 44.80 percent of Asians. In November, 1926, there were 65.70 per cent of white employees and 34.30 percent of Asians. In October, 1927, there were 68.86 per cent of white employees and 31.14 percent of Asians. (That is a job loss of 13.66% for Asians and the same gain for white workers after the minimum wage law was passed.)” This caused intense harm to the Asian community living in British Columbia during this time by prohibiting them from working due to the minimum wage laws that were in effect.
This deleterious effect on racial minorities was entirely intentional, and, back when progressives were honest about the intentions of their policies, they pushed the minimum wage as a way to “destroy jobs for undesirable poor whites and alleged non-white racial inferiors” (McMaken). The minimum wage, and its insidious buzzword friend the “living wage” were used not to help the poor but to drive them out of work so that they could be sterilized for the sake of weeding out undesirables (McMaken). These policies worked at getting undesired ethnic minorities and other “inferiors” out of the workforce, as shown by the evidence above, and is also shown in modern data since it prices out the least skilled laborers and increases unemployment. As has been shown, the old intention of the minimum wage was to get the oppressed classes out of gainful employment, and it greatly excelled at fulfilling that objective. In the words of one such progressive, the Fabian socialist Sidney Webb, “The unemployable, to put it bluntly, do not and cannot under any circumstances earn their keep. What we have to do with them is to see that as few as possible of them are produced” (Webb 991). He would also go on to say, “of all ways of dealing with these unfortunate parasites, the most ruinous to the community is to allow them to unrestrainedly compete as wage earners” (Webb 992). To Webb, it was much more deleterious for a low skilled worker to compete on the marketplace and earn a job than it was for that same worker to be forced from his job and segregated from the rest of society. All this was to be done in the name of progress and eugenics. Such thoughts were echoed by many other contemporaries of his, including Woodrow Wilson’s Commissioner of Labor, who wrote that “It is much better to enact a minimum-wage law, even if it deprives these unfortunates of work” (Meeker 544). And these are not the only two authors to express such an opinion. The progressive fervor for the use of a minimum wage for the purpose of the “isolation and sterilization of less desirable population groups” was truly enormous throughout the early part of the 20th century (Tucker). Indeed, the direct words “isolation and sterilization appeared in the work of Columbia president Henry Rogers Seager, who argued that “If we are to maintain a race that is to be made of up of capable, efficient and independent individuals and family groups we must courageously cut off lines of heredity that have been proved to be undesirable by isolation or sterilization” and the minimum wage was how he intended to prevent these groups from reproducing, since they would be “incapable of adequate self support” (Seager 10). One economist, Frank Taussig, wrote in his Principles of Economics about dealing with the “unemployable,” which is just code for the undesirables that the progressive movement spoke about, “We have not reached the stage where we can proceed to chloroform them once and for all; but at least they can be segregated, shut up in refuges and asylums, and prevented from propagating their kind.…” The quote continues: “What are the possibilities of employing at the prescribed wages all the healthy able-bodied who apply? The persons affected by such legislation would be those in the lowest economic and social group. The wages at which they can find employment depend on the prices at which their product will sell in the market; or in the technical language of modern economics, on the marginal utility of their services. All those whose additional product would so depress prices that the minimum could no longer be paid by employers would have to go without employment. It might be practicable to prevent employers from paying anyone less than the minimum; though the power of law must be very strong indeed, and very rigidly exercised, in order to prevent the making of bargains which are welcome to both bargainers” (Taussig).
It is clear, then, that the progressive movement of the early 20th century viewed the destruction of jobs of minorities and the uneducated as a good thing, since it meant that they would not have enough wealth to breed and reproduce. According to one review of the literature compiled through Princeton, the minimum wage was the “sine qua non” for the eugenics movement, meaning that without the minimum wage laws, the eugenic and progressive schemes would have been impossible (Leonard 212). Without minimum wage laws, the eugenic scheme of the progressive movement would have fallen flat, since minimum wages were so effective at excluding the unskilled workers from society. Rather than helping the poor, the minimum wage was specifically put in place to hurt them to such an extent that their numbers would dwindle by sheer inability to procreate. How is it that the same policies that were put into place to price out minorities and the poor, and succeeded at the task, are now to be put into place for precisely the opposite task, that is, to help the underprivileged?
In 1966, when an increase in the minimum wage was being debated, “the late Senator Jacob Javits (R-NY) freely admitted that one of his main reasons for supporting the bill was to cripple the southern competitors of New York textile firms. Since southern wages are generally lower than in the north, the business firms hardest hit by an increased minimum wage (and the workers struck by unemployment) will be located in the south” (Rothbard). The minimum wage is argued for and supported as a job killer so that those who are uncompetitive will, well, not compete with the most desirable workers.
Moreover, a variety of studies found that the minimum wage is dangerous for the economy, not just Neumark and Wascher, whose research found that New Jersey’s increase in the minimum wage “led to a 4.6% decrease in employment relative to the Pennsylvania group,” but also studies by Meer and West, as well as the Congressional Budget Office, which found that an increase in the minimum wage to $10.10 would lead to a loss of 500,000 jobs (Syrios). What is important to note is that the oft-repeated claim that “modest” increases in the minimum wage has a negligible impact on the employment level is deceitful on two levels. First, of course a small change in wages will have a small impact, that of course is perfectly logical, since a small change in one place would have a small effect. The second level of deceit comes in the fact than an increase from $7.25 to $10.10 is a 39% increase, which is of course rather immodest (Murphy). Additionally, from a more theoretical perspective, the British economist A. C. Pigou discovered that labor has an elasticity of -3 to -4, meaning that “If wages are pushed up above the point of marginal productivity, the decrease in employment would normally be from three to four times as great as the increase in hourly rates” (Pigou). However, this estimate seems to be rather large, as the study conducted by Meer and West puts the elasticity of labor demand for minimum wage workers as .30 to .53% drop in net job growth for every 10% the minimum wage is increased, although this is job growth, not employment itself.
I’d like to end with a quotation from economist Ludwig von Mises, he says that the denial of the link between minimum wage laws and unemployment is, “Tantamount to a complete disavowal of any regularity in the sequence and interconnectedness of market phenomena.” For these reasons, the minimum wage must be abolished.
Why the “Fight for 15” is a Fight for Unemployment
Economics is a difficult science to understand, but what is not particularly challenging to grasp is that people are less likely to purchase an item when it costs more, and labor is no exception to this rule, since that is the cost of purchasing a person’s time to perform a certain action. Artificially increasing the cost of labor necessarily means less labor will be employed, reducing jobs and opportunities for unskilled and low skilled workers, a clear detriment to the economy. In a study conducted by the American Action Forum, they looked at data from the Congressional Budget Office, the Meer and West Study, and the Clemens and Wither study, and found that if the minimum wage was increased to $15 an hour, there would be job loss of between 3.3 million and 16.8 million, and this purely jobs lost, not possible reductions in hours or possible increases in cost, and that it would only see additional income of $118.8 billion at most and possibly reduce income by $153.2 billion, and this is simply for jobs lost. If they calculated possible lost hours by those who still had their jobs or the inflationary effects of the minimum wage in order to calculate real increases in income instead of nominal, the numbers would be much lower, and the net income loss would be exacerbated. What is also interesting to note is that even if total net income were to increase, only about 6-8% of the increase (or decrease) in net income would go to the poorest among us, hardly improving their situation.
Even those who support the minimum wage acknowledge the drastic effects of an increase to fifteen, such as unions in Los Angeles who, after lobbying for the $15 minimum wage, are now lobbying to have themselves exempted from it (Kasperkevic). The reason for this is that the union knows it will be difficult for many of them to keep their jobs at the new rate, and are using the minimum wage to drive competition out, and by getting themselves exempted, essentially mandate that those who wish to be employed in low skilled labor must join a union, since they will be unable to be employed at the $15 an hour rate. Even some of those who lobby for a higher minimum wage are not doing it in order to benefit the poorest, but to exclude other laborers from competition.
Seattle has seen similar fallout, noting that restaurant closings are higher than they’ve been in the past, and that workers are asking for fewer hours in order to maintain their government benefits, which opposes the theory that this will lift them out of poverty, and the restaurants that aren’t closing are adding a 15% surcharge to their bills (Huston). Additionally, one comic book store in Seattle nearly had to close its doors, but was saved by offering subscriptions, which the owner acknowledges are little more than donations, to keep its doors open (Springer). The increase in the minimum wage has already proved disastrous when done in cities with already high minimum wages; the damage it will do to states and towns with lower minimum wages will be catastrophic for employment, and costs.
Recently, six big cities have raised the minimum wage, and in each city, the results have not been gains in employment and an increase in the standard of living, but rather, a decrease in employment, or, a rise in unemployment. In D.C., the hospitality and leisure sectors have lost about 700 jobs, instead of adding 2,000 like they had done over the past four years (Graham). This corresponded with the increase in the minimum wage. Chicago and the Bay Area experienced a “slump” in hiring that was a “five-year low” (Graham). This is half the growth rate it was in 2014 for Chicago, and the lowest it had been since 2010. In L.A., “accommodation industry employment fell by an average of 3% or 1,300 jobs” (Graham). Seattle has seen a job slowdown, whereas the rest of Washington has not. In LA, Walmart has recently announced the closure of one its superstores, most likely due to the rising cost of labor brought about by the increased minimum wage (Street). The states where these cities are located have not seen similar slumps in employment, which makes it seem more likely that these decreases in employment are a result of the minimum wage, and not an overall slowdown.
The most pressing concern of the “Fight for $15” is that the increase in the minimum wage is so large, and there is very little evidence about what happens when the minimum wage is raised that high; economists who generally support the minimum wage are unsure what the results of California raising their minimum wage is going to be (Lee). However, there is one tale of a minimum wage raised to monumental proportions, and it is a cautionary tale. When Puerto Rico’s minimum wage was raised to the federal minimum in 1983, the result was that “imposing the U.S.-level minimum reduced total island employment by 8-10 percent compared to the level that would have prevailed had the minimum been the same proportion of average wages as in the United States” (Castillo-Freeman 178). What this means is that the minimum wage increase reduced unemployment drastically compared to what would have otherwise occurred if the minimum wage was raised to be in proportion to minimum wages in the United States, essentially meaning that this 8-10 percent reduction in employment was a reduction in employment beyond the reduction in employment that is usually associated with raising the minimum wage. For example, if the minimum wage had an elasticity of -.3, then a 10% increase would result in 3% less employment, so this increase in the minimum wage was an 8-10% decrease in employment beyond that 3%. Of course, these These job losses were also focused on low-skilled industries, meaning that those workers with the least skills were the most disproportionately affected by the increase, which is per usual, and it pushed low-skilled Puerto Ricans to migrate to the mainland United States, results that are in line with the Monras study (Castillo-Freeman 178). These findings should not be surprising, nor should they be considered unusual. Along the migration line, the study argued that the ability of these low skilled to migrate created a “safety valve” in the Puerto Rican economy, and that without this migration, “the unemployment rate would have risen by 4 percentage points, from 17 to 21 percent” and that “the island employment-population rate” would have fallen by 3 percent (Castillo-Freeman 200-201). The result of a minimum wage is a reduction in the supply of low-skilled labor, and increases in disemployment. Moreover, in Puerto Rico, what was found when the minimum wage was increased was that in industries where the minimum wage had to be substantially increased, “employment dropped by 32 percent from 1974 to 1983!” (Castillo-Freeman 189). This increase was so substantial that the author of an academic study felt compelled to use an exclamation point; this labor was reallocated to other industries, meaning that the economy of Puerto Rico was rendered more inefficient by shifting labor from where the free market had it to a new distribution of labor designed to lessen the negative impacts of the minimum wage. California is going to share the fate of Puerto Rico, and it will not be pleasant for those workers advocating and agitating for a raise, a raise they will not get.
According to Jeffrey Dorfman of Forbes, if we assume a labor elasticity of -.635, a number coming from a study by Andreas Lichter, Andreas Peichl, and Sebastian Siegloch, and note that 16.5 million workers earn less than $10 per hour, 21.8 million workers earn between $10 and $12 an hour, and 16.8 million workers earn between $12 and $15 an hour, which comes from a CBO report. Following these calculations, the author determined that 13.2 million jobs would be lost. These results should not be surprising, and would be disastrous for low skilled workers. This is not a small loss of jobs. The implementation of a $15 an hour minimum wage would be a complete disaster for the poor and low skilled workers, since it will completely price them out of the market.
Recently, a slate of minimum wage increases just went into effect, and the result was entirely predictable. “Perhaps one of the more interesting data points from last week’s Employment Report is displayed in the graph above, which shows that the jobless rate for black male teens (aged 16-19 years) increased to 40.1% in June from 28.1% in May” (Perry). Why did this happen? The answer is because of the aforementioned minimum wage increases. The increase in the minimum wage harms exactly those groups that it is targeted to help, which was originally the purpose of the minimum wage laws. It does not benefit a poor person to have a minimum wage of $15 an hour if no one is willing to employ him or her at such a rate. While the current intentions of minimum wage advocates is to help the poor, the actual data supports the entire opposite outcome, namely, that the poor are unduly burdened by such legislation. Let us rid ourselves of the evils of minimum wages. Below is the chart for rates of Black Male Teen joblessness:
A Brief Discussion of Minimum Wage Literature
“When people refer to studies ‘disproving’ that minimum wage destroys jobs, do they want to debate economic theory or methodology?” – Per Bylund
The traditional US consensus on the minimum wage prior to 1990 was that the minimum wage produced a negative impact on teen employment, with the elasticities being -.1 to -.3, which I have mentioned and cited earlier. This was the finding from the broad review of the literature from Brown, Gilroy, and Kohen in 1982, and so “economists from across the political spectrum had no reason to doubt this apparent consensus in the empirical literature” (Murphy 19-20). To put it briefly, the empirics were consistent with the the theoretics, and there was very little cause for debate, even though certain sectors and industries were less severely impacted by the minimum wage than were teenagers and youth. Following this, however, the minimum wage analysis from the 1990s, looking at both state and federal minimum wage increases began to “unravel” the broad consensus by engaging in a new style of study, the “case study” approach, including Card and Krueger, Katz and Krueger, and Card, coming from 1994, 1992, and 1992, respectively (Murphy 20-21). This new approach was purported to shatter the consensus by looking at the data more accurately, and so the opinion amongst economists went from overwhelmingly against the minimum wage to around 75% of economists believing that a minimum wage increase would harm employment; the vast majority of economists still held the traditional opinion. The Card study found that the minimum wage boosted “the earnings of low-wage workers by 5–10%. Contrary to conventional predictions, however, there was no decline in teenage employment, or any relative loss of jobs in retail trade” and the other two studies reported similar findings as far as employment was concerned (Murphy 20-21). Had economists been wrong about the minimum wage in their traditional approach to the data? Some said yes in light of the new findings, but, as will be explained more below, the findings of the new approach are not as insurmountable as they seem at first blush. The argument was that these new studies were more reputable because they looked at more specific data among certain regions instead of trying to look at the data in a broad based manner. Essentially, they opined that the new studies were more specific, and thus more accurate. As economists debated the minimum wage, studies came out from Oregon and Washington in 2007 that argued that “the minimum wage generates consistently negative employment effects for eating and drinking workers where the minimum is shown to be relatively binding, but not for hotel and lodging workers where the minimum is less binding” and that “[r]egressions using job-specific want-ad data from Portland and Seattle newspapers also indicate a reduction in hiring solicitation relating to the extent that the minimum wage binds” (Murphy 22). These studies were conducted in the exact same manner as the Card and Krueger studies, but found opposite results. Clearly, the new approach did not find the same result every time it was tried. The traditional theory has on its side the preponderance of the traditional research, and a good deal of the new approach as well; the case for a higher minimum wage has become more tenuous, even using the methodology of the “new” approach. In 2009, a study by Hoffman and Trace used the same states as Card and Krueger, namely, PA and New Jersey, and looked at when the federal minimum wage was increased from 1995 to 1998. Their finding was that minimum wage increases had negative effects on employment for the groups most likely to work minimum wage jobs. These effects are always negative and “they are often stronger for more narrowly defined groups that are arguably more likely to be affected” (Murphy 22). The same states that once gave Card and Krueger their famous result now gave data that reinforced the traditional consensus, this time using the federal minimum wage instead of the state minimum wage used in Card and Krueger. What was once a thorn in the side of traditional economics revealed itself to be another case of the widely held belief in the effects of the minimum wage being correct. The case study approach also has the downside of looking only at short term effects of the minimum wage, instead of long term effects, even though it is a widely accepted macroeconomic principle that elasticity is greater over the long term than in the short term, since employers can more readily substitute away from labor over time than they could in the short term. One Canadian study found this result: “For example, Baker, Benjamin, and Stanger (1999) studied Canadian data from 1975 to 1993, and concluded that a 10% increase in the minimum wage was associated with a 2.5% decline in teen employment. Perhaps more important, they showed that if they analyzed the same data at ‘high frequencies’, then the apparent effect of the minimum wage vanished. Their conclusion was that the ‘new minimum wage research’ was erroneously missing the actual impact on teen employment because it did not place adequate weight on long-term impacts” (Murphy 23). Negative effects of policies do not take place the second a policy is enacted, so by only looking at the data in the short term, success can be announced before the long term negative effects have had time to manifest themselves. The “new” approach, which tried to overturn the traditional consensus is not without methodological flaws, meaning that its findings are suspect. In response to this, economists began trying to generalize the case study approach, to see if the findings could broadly support the idea of minimum wages not impacting employment. Put simply, the findings from the generalization coming from Dube, Lester, and Reich in 2010 found that the elasticity was -.211 with no control for “total private employment” and -.176 “with such a control” which is significant at the 5% and 10% level respectively. The more variables they could control for, the more these results lessened, however, the confidence interval they created contained -.147 at a 90% confidence level (Murphy 24). If the elasticity contained in this range contains -.147, then this does not upset the traditional findings, since the traditional findings are from -.1 to -.3, so when generalized, the traditional findings are not upset by this study. More recent studies have continued this dialogue, with the Allegretto, Dube, and Reich study in 2011 and the Neumark and Salas study in 2013 offering the pro and anti minimum wage case respectively (Murphy 25-26). I won’t go too deeply into the debate on methodology, save for that Murphy’s research, which I have been summarizing liberally is cited below and can be accessed for more information. The Neumark and Wascher study from 2007 found that:
Our lengthy review of the new minimum wage research documents the wide range of estimates of the effects of the minimum wage on employment, especially when compared to the review of the earlier literature by Brown et al. (1982). For example, few of the studies in the Brown et al. survey were outside of the consensus range of −0.1 to −0.3 for the elasticity of teenage employment with respect to the minimum wage. In contrast, even limiting the sample of studies to those focused on the effects of the minimum wage of teenagers in the United States, the range of studies comprising the new minimum wage research extends from near −1 to above zero. This wider range for the United States undoubtedly reflects both the new sources of variation used to identify minimum wage effects—notably the greater state-level variation in minimum wages—and the new approaches and methods used to estimate these effects. And, the range would be considerably wider if we were to include estimates for narrower subsets of workers and industries or estimates from other countries. Nonetheless, the oft-stated assertion that the new minimum wage research fails to support the conclusion that the minimum wage reduces the employment of low-skilled workers is clearly incorrect. Indeed, in our view, the preponderance of the evidence points to disemployment effects. For example, the studies surveyed in this monograph correspond to 102 entries in our summary tables. Of these, nearly two-thirds give a relatively consistent (although by no means always statistically significant) indication of negative employment effects of minimum wages, while only eight give a relatively consistent indication of positive employment effects. In addition, we have highlighted in the tables 33 studies (or entries) that we regard as providing the most credible evidence, and 28 (85 percent) of these point to negative employment effects. Moreover, when researchers focus on the least skilled groups most likely to be adversely affected by minimum wages, the evidence for disemployment effects seems especially strong. In contrast, we see very few—if any—cases where a study provides convincing evidence of positive employment effects of minimum wages, especially among the studies that focus on broader groups for which the competitive model predicts disemployment effects (Neumark 163-164).
The empirical data here shows that the consensus has been challenged by the “new” approach, but that the debate, even when using the “new” approach, has not ended. The Canadian view has much less debate on the issue than the American research, and so I cannot say that it would be reasonable to say that the data supports the view that the minimum wage does not decreased employment. While there are challenges to the consensus, these challenges have themselves been met with arguments about the validity of these challenges For example, one argument was that geographically close data points provides a better view of the data, but that the study that argued that, namely Dube, Lester, and Reich, systematically biased their findings by creating a formula that produces those results, and that Neumark, Salas, and Wascher in 2014 found that the geographic assertion of Dube, Lester, and Reich was “a mere assumption that can be tested” and found that the assumption was false (Murphy 53). Here, then, the challenge to the consensus was found to be methodologically flawed, and thus not a real harm to the traditional view. A second challenge concerned the use of “placebo” groups using counties that did not see the minimum wage increases that were adjacent to counties whose minimum wage was increased, that is, counties in Pennsylvania compared to those in New Jersey. They found
this result to reinforce their hypothesis that the traditional panel data approach was biasing the coefficients downward on a given state’s minimum wage. For example, the traditional approach might show that a minimum wage hike in New Jersey was associated with lower employment in New Jersey, and (of course) traditional economists would have assumed the association was causal. But if the same traditional approach shows that a minimum wage hike in New Jersey was associated with lower employment in Pennsylvania (which always matched the federal level), then surely there must be an “omitted variable” at work, because it makes little sense to assume New Jersey’s policies could have such a strong effect on Pennsylvania employment. Perhaps there was some regional trend affecting the economies of New Jersey and Pennsylvania at those times when New Jersey legislators happened to raise the state’s minimum wage” (Murphy 55). Essentially, there is a variable at play that biases the results away from what they would have been in the absence of the confounding variable, but they do not say what this variable is, a placebo effect is at work. Of course, there is a “legitimate response” to this by Neumark, Salinas, and Wascher in 2014 (Murphy 55).
The response, put briefly, was that the variable was the increase in the federal minimum wage, which led to a decrease in employment in Pennsylvania. When the 2014 study did the same regression without the federal minimum wage increase, they found “a much smaller (in absolute terms) and statistically insignificant coefficient on the adjacent-county minimum wage variable. They conclude that the ‘placebo’ group constructed by Dube, Lester, and Reich (2010) was actually a treatment group, because the counties had indeed experienced minimum wage hikes every time the federal government raised the level” (Murphy 56). So, the results of the pro-minimum wage study only occurred because the regression was incomplete and included unaccounted for variables. Now, Allegretto, Dube, Reich, and Zipperer responded, defending their point, and Neumark, Salas, and Wascher gave a rejoinder in kind, which can found on pages 56 and 57 of the Murphy study which has been heavily cited. I have summarized two ongoing debates in the data, and so the case that new data is overturning the established consensus is tenuous at best. The minimum wage literature opposing the traditional view is marred by problems of methodology, and thus cannot be concerned as a great blow against traditional views. There are many methods of collecting data, and it is difficult to know which methods of analyzing data will give the best results, but the fact of the matter remains that the empirical debate, while not finished, is so heavily in favor of the traditional consensus that it would be difficult to overcome the disadvantage in the number of studies, for most studies that support the new view are heavily methodologically biased. As far as the theoretical view, I have yet to see a theoretical view of the minimum wage that can account for the law of demand and the marginal propensity to consume.
More Examples (All from Thomas Sowell’s Basic Economics 4th Edition)
Hong Kong had unemployment below 2%, however after new labor laws (which essentially amounted to minimum wage laws because they forced employers to pay for more benefits) unemployment rose to 7.3% in 2002, and was 8.3% in ‘03, a result of the minimum wage and other labor laws enacted by China.
Canada vs. US is another example. Over a five year period, Canada had higher minimum wage, and unemployment was higher, as was average duration of unemployment, and lagged behind in job creation. Three provinces had unemployment of >10, with the highest being 16.9% in Newfoundland. No American state was as high as 10% during this time.
ACORN wanted a minimum wage, but wanted themselves exempted from it, saying “The more that ACORN must pay each individual outreach worker, either because of minimum wage or overtime requirements, the fewer outreach workers it will be able to hire.”
According to a study done between Brazil and the US about the minimum wage, the study concluded, “Research for the United States finds no gains to low income families from minimum wage increases, and if anything increases poverty.”
West African nations had a high “informal” minimum wage caused by outside pressure and labor unions, and as such suffered from chronic “excesses” of labor, since people were willing to work but were unable to find jobs. Additionally, this caused Western African nations to pour more capital into their industries, since labor had been artificially overpriced.
Furthermore, in Europe, high minimum wages have eliminated the positions of bag boys and parking attendants in many major cities, of course not all, but many.
In the US, the minimum wage directly caused crippling unemployment among blacks, especially amongst black teenagers, causing their unemployment to be twice that of whites, since many had poor education common to inner cities and myriad other reasons. Furthermore, before the minimum wage increases, black workforce participation was higher than it was for whites, but afterwards has not been able to recover. The National Labor Relations Act alone caused the loss of jobs for 500,000 blacks in Southern textile industries. In 1949, a recession year, black teenage unemployment was higher than it was during the booms of the 1960’s, due to minimum wage laws. This furthered the employment gaps between white and blacks, and is a large part for many of their hardships today. Just a year before, in 1948, black teenage unemployment was less than half of what it was during the 60’s, and a third of what it was during the 70’s. It was minimum wage laws that have hugely crippled the black community by making it much more difficult for them to gain employment, and thus much more difficult to accumulate work experience, which only has more detrimental effects as time goes on.
What all these show is that the intended effects of the minimum wage do not matter; all that does matter is what it does to the economy. And the evidence is conclusive: it damages it, especially where the poor are concerned. What does this mean? This means that every time the government attempts to pass a law to improve the living standards of the “underprivileged,” they cause consequences that any economist could have foreseen, so long as he was focused on the incentives and disincentives created, and not the “goals.” Goals are irrelevant, it is results that matter, and history has shown us time and time again that minimum wage laws do the exact opposite of their stated goal by driving unemployment and worsening poverty, both of which are moral harms. I would love to stand up here and say that we can legislate our way into prosperity, but laws cannot overcome economic realities, no matter how hard we would wish they did.
And a quote by Ayn Rand because how can I resist? “There is no such thing as a lousy job – only lousy men who don’t care to do it.”
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