When Congress raises the minimum wage, as many as 400,000 of the most vulnerable and disadvantaged work force members will lose their jobs and an unknown number of marginally profitable businesses will fail. Lawmakers on both sides of the aisle know this. Nevertheless, spurred on by the mercenary wishes of special interests such as organized labor and emboldened by widespread public ignorance about the harmful consequences, they callously plow ahead with the legislation. To temper the disastrous effects of an increase in the price of labor, some lawmakers have attached provisions easing the tax burden on small businesses. If they want to be fair, they would make it possible for those hardest hit by the legislation to sue the government for their losses. Better yet, victims of the legislation ought to be allowed to sue the lawmakers who vote for their vocational extinction and the president who signs it into law.
This would no doubt drive home the point that a minimum wage hurts workers and the workers it hurts are those at the very bottom of the income ladder. Studies conducted by the Department of the Treasury and the Urban Institute, among others, show that the vast majority of workers at the bottom of the income scale tend to move up and are replaced by new entrants to the labor market. Thus, upward mobility, despite strained skepticism of cynics, is alive and well. A minimum wage, however, raises the bottom rung of the economic ladder out of reach of some would-be workers. This is what happened when the minimum wage was increased in 1990 and again in 1991. Unemployment increased most among low-wage workers, teenagers, high school dropouts, African-Americans and Hispanics.
Talk about disparate impact.
Ironically, the groups most hurt are those that politicians, who clamor for a higher minimum wage, claim they want to help. Instead of enjoying improved lives, the very poor find themselves sideswiped by unintended consequences that inevitably arise from the actions of an excessively paternalistic government. For instance, a study by the Institute for Research on Poverty at the University of Wisconsin found that a raise in the minimum wage decreased work opportunities for welfare mothers. A study by the Employment Policies Institute found that a minimum wage hike drew teens out of school to look for work. As a result, the number of teens neither working nor attending school increased by 20 percent. It is not surprising, then, that studies out of Ohio State University and the University of California–Santa Barbara both revealed that higher minimum wage levels lead to higher rates of teen crime.
Supporters of an increase in the minimum wage have a study they prefer to use. Department of Labor Secretary Robert Reich talks about it all the time. This study, by David Card and Alan Krueger of Princeton University, claims that when New Jersey raised its minimum wage, the number of low-wage jobs there actually increased. It is clear why Reich likes this study so much. If it is true, why, that means the labor market is immune to the fundamental economic law of supply and demand. Heck, why not jack the wage requirement up to 12 bucks an hour — or 100. Unfortunately, to arrive at such a counter-intuitive conclusion, Card and Krueger were reduced to using some mighty sloppy methodologies. Other, more careful researchers, most notably David Neumark of Michigan State University, have since come along and shown that, just as common sense would dictate, New Jersey’s low-wage employment dropped when the state raised its minimum wage.
If a minimum wage is so clearly and demonstrably harmful, why does any sane politician support an increase? There are several reasons. The increase sounds compassionate to the public at large. Most voters haven’t read the studies and few have especially sophisticated backgrounds in economics. Furthermore, only a tiny fraction of Americans depends on minimum-wage jobs for their sole family income. The number of these workers who will lose their jobs if the rate is raised is even smaller. It’s easier for a politician to go along with the popular misconception than to protect the jobs of a few poor people who hardly ever vote anyway. Plus, such a politician gets the added bonus of getting to accuse his or her political opponents — the ones who oppose a minimum wage — of waging war on the poor.
Another reason politicians support a wage increase is that people who benefit from increases in the minimum wage are much more powerful — and more prone to vote — than those who fall off the bottom rung of the ladder. As a group, the teenage sons and daughters of middle-class voters tend to gain from higher minimum wages. More importantly, so do labor unions, albeit indirectly. Rest assured, union big shots don’t crowd into congressional hearings and lobby for higher minimum wages out of compassion for those less fortunate than themselves. (For a bloody demonstration of the kind of compassion organized labor feels for the poor, watch what happens when someone in need of work tries to cross a picket line.) The fact is, when the minimum wage increases, it becomes possible for organized laborers to demand higher wages without putting their employers at a disadvantage to non-union competitors.
There is really nothing good to say about the minimum wage. It hurts the people who can least afford to be hurt while it helps people who don’t need help. Politicians find it an irresistibly convenient way to appear compassionate even as they shaft the poorest of the poor in order to court favor with powerful special interests. On top of all that, it has regressive, bureaucratic, fascist overtones.
Think about it. By legislating a minimum wage, the government tells workers they do not have the right to freely decide at what price they will sell their labor. As we’ve seen, this loss of freedom will cost people jobs. That’s why those people ought to be given the right to sue the politicians who support a higher minimum wage.
Charles Foster’s column appears in the Daily every other Monday.