By Derek Franklin
“Mandated wages are one of the most effective means of pricing one’s competition out of the market, and historically, mandated wages have been one of the most effective tools in the arsenal of racists everywhere.” (Walter E. Williams, 2007)
Well intentioned elected officials lead political movements advocating for a federal minimum wage of $15 an hour. This crusade also has the popular support of a growing number of Americans. But hopes and dreams cannot prevent the harm minimum wage laws inflict on low-skilled workers. For this reason, the government must repeal all minimum wage legislation.
Minimum wage laws have been in effect since 1938. Back then, the federal minimum wage was a quarter. In March 1956, it increased from $0.75 to $1.00. By 2009, the wage rose to its current $7.25 per hour.
Along the way, the increased wage rate has had destructive effects on the lives of the bottom rung of workers. The fight for $15 will bring more of the same if it’s successful.
An Economic Policy Institute article entitled, “Why the U.S. needs a $15 minimum wage,” gave support for the Raise the Wage Act of 2021. The Biden administration originally attached it as an amendment to the $1.9 trillion COVID-19 relief bill.
The bill featured an increase in the minimum wage to $15 per hour by 2025. It failed to pass in the Senate 42 – 58 when eight Democrats crossed the aisle to vote against it.
However, with the stroke of his pen, President Biden turned defeat into triumph. On April 27, 2021, he issued an executive order increasing the federal minimum wage to $15 per hour effective January 30, 2022.
The Biden administration asserts, consistent with the EPI article, that the wage increase will lift pay for 32 million workers or 21% of the current workforce. Full-time, year round workers would make an extra $3,300 per year. Affected workers would generate $107 billion in higher wages.
Also, the higher minimum wage rate would reduce the income inequality of the lowest wage earners compared to their counterparts.
While the intentions are laudable, one cannot overrule economic laws. Further, empirical evidence shows the policy will have disastrous consequences. That includes job destruction, discrimination against lower-skilled workers, and higher prices for consumers.
The law of demand states the quantity purchased varies inversely with the price. Stated differently, the higher the price, the lower the quantity demanded.
By raising the costs of employing low skilled workers, the minimum wage makes employing them less attractive, causing job losses.
Moreover, losing jobs means not only losing income, but missing out on the chance to gain valuable job experience. The result is unintended harm to many low-skilled workers.
Another economic issue usually overlooked in minimum wage debates is the substitution effects of minimum wage increases.
When the price of a good or service rises, consumers search for substitutes and devise ways to “tighten their belts.” For example, as gas prices rise, people tend to buy more fuel efficient cars to cut back on gas usage.
Consider the sugar industry. In 1816, the U.S. imposed high tariffs on sugar to pacify sugar plantation owners in the newly bought Louisiana territory. In 1934, the U.S. gave additional support to sugar growers when they implemented sugar import quotas. These complemented already high sugar tariffs and direct government subsidies to sugar growers.
Fast forward to November 6, 1984. Coca-Cola and Pepsi announced they’d stop using sugar in its soft drinks. Instead, they added cheaper high fructose corn syrup. Lower costs for the sweetener (HFCS) were ultimately passed on to the consumer in the form of lower soft drink prices.
Yet another negative consequence of minimum wage laws is the increased number of young, unemployed males, many of them black. Often, they wind up on the streets because they can’t find a job. Since they’ve been priced out of the legitimate job market, many turn to the “hood” to make their money. Many more may wind up in prison or worse.
Contrary to popular opinion, the minimum wage is not an employment law; it’s an unemployment law. “The law makes it illegal to hire anyone at a rate below the mandated wage, doesn’t create a floor, raises wages, and is a hurdle that potential employees must clear to get a job,” according to economist Walter Block. “The higher the hurdle, the harder it is to clear.”
In a $15 minimum wage environment, low-skilled workers have the hardest time clearing the minimum wage hurdle because their productivity per hour is less than $15.
Wages are based on productivity. The more productive the worker, the higher the wage. Movie star Denzel Washington starred in approximately 45 films, grossing just over $4 billion dollars.
Based on Washington’s productivity (i.e., the success of his movies in terms of their box office sales), he commands a per movie salary of about $20 million.
The federal government and respected economists have also codified the destructive force of a $15 minimum wage.
According to a non-partisan U.S. Congressional Budget Office study, a $15 minimum wage would result in the loss of 1.4 million jobs. Most of the job losses would occur among least skilled workers because their productivity per hour is less than $15.
Economist David Neumark and Peter Shirley analyzed sixty-nine papers on the effects of the minimum wage dating from 1992 to 2021. They concluded that 79.3% of the papers showed negative employment effects (I.e., fewer jobs or hours worked) associated with minimum wage increases.
Negative employment effects were most severe for teens, young adults, and less-educated workers. Directly-affected workers suffered even stronger negative employment outcomes. In recent years, studies showed no proof employment impacts were less negative when compared to the older studies
Interestingly, the minimum wage laws have racist origins too.
Passed in 1931, the Davis-Bacon Act became the first federally mandated minimum wage law. The Act required employers pay no less than the local prevailing wage (basically a minimum wage) on public works projects for laborers and mechanics. Construction workers and skilled tradesmen were called mechanics as far back as the early 1800s. The law’s specific intent was to discriminate against black construction workers.
During the debate leading up to passage of the Act, several congressmen and union leaders openly said their racist intentions.
“Reference has been made to a contractor from Alabama who went to New York with bootleg labor. This is a fact,” Rep. Miles Allgood said. “That contractor has cheap colored labor that he transports, and he puts them in cabins, and it is labor of that sort that is in competition with white labor throughout the country.”
American Federation of Labor President William Green said, “Colored labor is being sought to demoralize wage rates.”
With the overwhelming support of the Congressional Black Caucus, the Davis-Bacon Act survived many challenges and is still law today. The fact that the Act’s supporters don’t use the racist language of the 1930s doesn’t negate its racially discriminatory effects.
Nor does it stop the reduction of economic opportunities for low-income workers, or its restriction of the entry of lower cost, non-union construction firms.
A labor market free of minimum wage laws would allow the cost of labor to match labor productivity. This would offer employment to every young man and woman willing to work. Young people would be free to walk through the doors of economic opportunity. Their labor productivity would soon improve, rising far above the present minimum wage.
Economist W. H. Hutt remarked that, “the market is color blind.”
Political activist Marcus Garvey seemed to realize as much when he said, “The capitalist being selfish – seeking only the largest profit out of labor – is willing and glad to use Negro labor wherever possible on a scale reasonably below the standard minimum wage…but if the Negro unionizes himself to the level of the white worker, the choice and preference of employment is given to the white worker.”
Ultimately, minimum wage legislation is a solution in search of a problem. The time for its repeal is right now.
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