REVIEW & OUTLOOK
October 3, 2009
The Young and the Jobless
The minimum wage hike has driven the wages of teen employees down to $0.00.
Yesterday's September labor market report was lousy by any measure, with 263,000 lost jobs and the jobless rate climbing to 9.8%. But for one group of Americans it was especially awful: the least skilled, especially young workers. Washington will deny the reality, and the media won't make the connection, but one reason for these job losses is the rising minimum wage. Earlier this year, economist David Neumark of the University of California, Irvine, wrote on these pages that the 70-cent-an-hour increase in the minimum wage would cost some 300,000 jobs. Sure enough, the mandated increase to $7.25 took effect in July, and right on cue the August and September jobless numbers confirm the rapid disappearance of jobs for teenagers.
The September teen unemployment rate hit 25.9%, the highest rate since World War II and up from 23.8% in July. Some 330,000 teen jobs have vanished in two months. Hardest hit of all: black male teens, whose unemployment rate shot up to a catastrophic 50.4%. It was merely a terrible 39.2% in July. The biggest explanation is of course the bad economy. But it's precisely when the economy is down and businesses are slashing costs that raising the minimum wage is so destructive to job creation. Congress began raising the minimum wage from $5.15 an hour in July 2007, and there are now 691,000 fewer teens working. As the minimum wage has risen, the gap between the overall unemployment rate and the teen rate has widened, as it did again last month. (See nearby chart.) The current Congress has spent billions of dollars— including $1.5 billion in the stimulus bill—on summer youth employment programs and job training. Yet the jobless numbers suggest that the minimum wage destroyed far more jobs than the government programs helped to create. Congress and the Obama Administration simply ignore the economic consensus that has long linked higher minimum wages with higher unemployment. Two years ago Mr. Neumark and William Wascher, a Federal
9% of 40-hour-a-week workers earn more than the minimum. A high-wage society can only come by making workers more productive. In other words. and by destroying starter jobs the minimum wage may reduce long-term earnings.Reserve economist. expect the teen unemployment to remain very high for a long time.
. in 2008 only 1. found a highly negative association between higher minimum wages and youth employment rates. counteracts much of this negative jobs impact. also by Messrs. The Massachusetts teen employment rate sank by one-third when the minimum wage rose by 88% between 1995 and 2008. Michigan and New York. Whatever happened to President Obama's pledge to follow the science? Democrats prefer to cite a few outlier studies known to be methodologically flawed. and an estimated two of every three minimum wage workers get a pay raise within a year on the job. Neumark and Wascher. According to new numbers from the Labor Department. reviewed more than 100 academic studies on the impact of the minimum wage. State lawmakers are also at fault. largely in response to union lobbying and in the name of helping the working poor. At least 10 states have raised their minimum wages above the federal level in the last decade. The data also show that teenagers are five times more likely to earn the minimum wage than adults.
Study after study reveals that there are long-term career benefits to working as a teenager and that these benefits go well beyond the pay that these youths receive. White House chief economic adviser Larry Summers has endorsed this in the past. They found "overwhelming" evidence that the least skilled and the young suffer a loss of employment when the minimum wage is increased. 98. A study by researchers at Stanford found that those who do not work as teenagers have lower long-term wages and employability even after 10 years. Studies have shown in each case that their wage policies killed jobs for teens. But it also concluded that having a starter wage. Minimum wage jobs are nearly all first-time or part-time jobs.1% of Americans who work 40 hours a week or more even earned the minimum wage. Massachusetts. it should at least create a teenage wage of $4 or $5 an hour to help put hundreds of thousands of teens back to work. Without this change. Another recent study across 17 OECD nations. well below the minimum. The wonder of it all is that liberals still call "progressive" a policy that has driven the wages of hundreds of thousands of the lowest skilled workers down to $0. Four states with among the highest wage rates are California.00. If Congress won't suspend its recent minimum wage hike.
Mr Butcher said that ministers had encouraged the commission to explore the issue before making its recommendations for next year’s minimum wage rates." The British Chambers of Commerce said that the minimum wage should be part of the effort to reinvigorate the economy. The Commission’s intervention comes amid calls from businesses for minsters to freeze or even cut the rate to enable more young people to find work.telegraph. the commission raised concerns about younger workers. Tim Butcher. while some of it was specifically due to a "minimum wage effect". to expand and to invest. the minimum wage is now £4.co. We do know recessions affect young people as employers operate first-in." The commission has now commissioned research to examine the link between the minimum wage rate and youth unemployment.
By Richard Tyler. New rates for the minimum wage took effect on Saturday. This Government is not just sitting back. He said: "We don’t know what the minimum wage effect is in isolation from the recession effect." Mr Cameron said ministers want to do "all the things to make it easier for businesses to start up.
. David Cameron yesterday said that the issue of boosting economic growth is the centrepiece of this week’s Tory conference in Manchester. Mr Butcher said some youth unemployment was caused by the economic slowdown hurting businesses. first-out and look for people with experience. Conservative ministers meeting at the party’s conference are to promise a raft of measures to boost the stalling UK economy.68.html
Minimum wage harming job opportunities for young
The minimum wage may be pricing young people out of work because employers are finding it too expensive to give them their first job. For 16-17 year olds.000 have been out of work for more than a year and some economists fear a "lost generation" of young people who never learn the habits of work and face a lifelong struggle ever to find employment.http://www. For 18-20 year olds." the commission told ministers. The claims will add to pressure on the Government to go further.98. Almost 220. and James Kirkup
9:58PM BST 02 Oct 2011
Firms may be reluctant to create jobs by recruiting inexperienced staff because they are put off by the increased wage bill. the commission’s chief economist told the Daily Telegraph that the body is launching a new investigation into the role the minimum wage has played in Britain’s growing youth unemployment problem.64. The commission’s move is will put the minimum wage on the agenda as ministers search for ways to help companies prosper.5 million people officially counted as unemployed in Britain are aged between 16 and 24. In its official advice to the Government on this year’s pay rates.92. "There is a step change taking place right now. Government pay advisers have said. up from £4. "Recent research has found evidence that in difficult economic circumstances the level of the minimum wage may have had an impact on the employment of young people.uk/finance/jobs/8802890/Minimum-wage-harming-job-opportunities-for-young. the new rate is £3. up from £3. "We are firing up the engines of the British economy. for businesses to grow. Official figures last month showed that almost 1 million of the 2. the first such warning since the introduction of the legal minimum rate in 1999." the Prime Minister said. the Low Pay Commission has suggested. for business to employ people.
Oh then there is the question as to wether the DSA aren't actually biasing results towards those that have an official driving instructor number. "The concern is that the current rate is discouraging some employers from taking on young people and giving them a chance to get into the workplace.. to help it "catch up" with the adult rate... which not every one can afford (to be honest).. By contrast. driving lessons aren't cheap prior to that. Director of Policy at the BCC said that there should be a freeze in the minimum wage for younger workers.. He said: "The Low Pay Commission has accepted our argument that unskilled workers will lose their jobs if the minimum wage is increased.Adam Marshall. this year’s rise in youth rates is 1 per cent." Under this year’s rates." he said. A faster increase in the minimum wage than average earnings means greater difficulty for the young or unskilled to find work as they become relatively less attractive to employers. because inflation is running above 4 per cent.. in fact when you have to pay for steeper..93. still. whose members employ more than 85. up from £5. It was possible that the body could recommend an above-inflation increase in the youth rate.. near illegal insurance rates on vehicles. workers over 21 must legally be paid at least £6. a job that normally most parents that can drive can manage to do. many of them are stuffed before they even get started. Both the adult and youth rates are being cut in real terms.. he said. it creates a lot of very overpriced jobs teaching other peoples kids to drive. rather than treating them fairly and unbiasedly on their ability to actually drive the vehicle as originally intended.. "Some companies are finding the rate is a real problem. Mr Butcher said that the commission is still considering its recommendations to ministers for the minimum wage for next year. etc etc.."
sdhobbs 10/08/2011 11:29 PM
Maybe the critics should remember that actually the cost of living for a youngester is actually no less.. I suppose.. followed by a consultation with employers about a gradual reduction in the rate. That is a 2. Roger Pedder. employing otherwise useless members of the society because their only actual qualifications are that they can drive a car and talk. a job most of us can equally
. chairman of the Unquoted Companies Group... unless mummy and daddy support them....08 an hour.000 people. reflecting the commission’s concerns about youth unemployment.. yet they are the ones that these people ultimately want to be able to drive to work and do their bidding like slaves from whichever near hovel they can possibly afford to live in. warned against any such increase.5 per cent rise.
George Mason University.05 by 1992. it is the individual--the sovereign consumer--who has the final say in determining wages. Thus. If consumers do not value a particular good or service offered on the market. The first worker is given a shovel and an ax. by 1990. a number of Washington's lawmakers have once again proposed to substantially  raise the minimum wage employers may pay workers. Kennedy finds it "unacceptable" that the present  minimum wage "does not permit full-time workers to provide the bare necessities for their families. as well as the other factors involved in producing the good. Wage rates can also be improved if employers increase their investment in future production. his wage. Edward Kennedy (D-Mass.
Executive Summary Thanks to the political clout of organized labor. including a wage. Increased capital investment renders labor more productive by providing workers with better tools. Behind the rhetoric of economic justice and fairness lie purely self-serving political considerations." The simple truth about the issue is that any minimum-wage rate that is forced onto the market will have only negative effects on the distribution of economic justice. by nearly 40 percent. An amendment to the House version of the bill. and poorest workers. to $4. there is only one noncoercive method through which real wages can rise: workers must become more productive. Minimum-wage legislation. The proponents argue for a "fair" minimum wage. 1988
The Minimum Wage: Washingtons Perennial Myth
by Matthew B. Augustus Hawkins (D-Calif. Kibbe Matthew B. The most obvious way for workers to enhance their productivity is to increase or improve their skills through education.) would raise the present minimum wage. experience. Kibbe is a graduate student of economics and a fellow at the Center for the Study of Market Processes.org/pubs/pas/pa106. benefits some at the expense of the least experienced. labor. will be worth little. using an appeal to simple economic justice as the single important justification for their position.).Ky. a bulldozer. is simply the outward expression of what employers perceive to be consumers' preferences.) and Rep. Minimum-wage legislation is and always has been the result of special-interest politics. by its very nature. Proposals from Sen. full-time employees make up only a small percentage of the total number of people earning the minimum wage. is even more generous. A particularly glib admission of this fact was recently made by a Democratic House aide. The proponents' use of such straw men not only confuses the issue but also suggests that there are other. Members of Congress who support an increase in the minimum wage have all but monopolized the ethical high ground.65.http://www. less sincere motivations for supporting an increase in the minimum wage. A simple example of this principle is the case of two equally productive workers assigned to clear a wooded lot. while individuals selling their labor attempt to find the highest-bidding employer. Aside from a shift in consumers' preferences. Every market price. the second. and then political considerations will win. The Determination of Wages in a Market Economy The supply of and demand for particular skills determine the market price of an individual's labor--that is.cato. who claimed during a congressional battle over increases in the minimum wage that Democratic proponents would "throw numbers out till nobody can have faith in the numbers. the
. sponsored by Rep. and effort. Obviously. 106 May 23. That's how we do it every  time. least productive.html Cato Policy Analysis No.35. as though government could simply legislate wealth into existence. it would raise the minimum wage to $5. Carl Perkins (D." In reality. $3. Employers attempt to purchase the specific skills they need at the lowest available price.
He must find some basis for choice. economist Walter Williams described how minimum-wage legislation alters the incentives of employers: Suppose that an employer has a preference for white employees over black employees. unwilling or unable to absorb such costs. everyone could be a millionaire. Second. and they may decide that a business's product is not worth a higher price. government reduces the costs of discrimination. Those jobs not eliminated will be more demanding. in effect pricing them out of the market. they will have managed to change the structure of relative prices at the expense of businesses that are unable to raise their prices because of more-intense competition. There are several problems with the notion of cost-push inflation. Many firms. The existing minimum wage has contributed significantly to producing these abhorrent levels of unemployment. assume the employees from which he chooses are identical in terms of productivity. or by cutting back production. In this view. The primary error in this analysis is that it confuses a shift in the structure of relative prices with a general rise in the level of prices. for whatever reason. the demand for that good will fall. Those businesses. In The State against Blacks. and people who could have been employed at market wages are put on the street. Producers cannot force consumers to buy what they produce.5 percent. the losers include young workers who have too little experience to be worth the new minimum and marginal workers who.35 an hour. He must pay the black $3. The worker who is not quite worth the newly imposed price loses out. and the unemployment rate for black teenagers is 36. It is consumers who ultimately determine the price of any good on the market." Unfortunately. Typically. Congress would long ago have passed laws prohibiting poverty and establishing a minimum wage of $100. Thus. The Economic Effects of Minimum-Wage Laws Simply stated. may be unable to pass on their increased costs to consumers. by replacing labor with more-productive machines. These workers are generally the least experienced. By establishing an arbitrary minimum. Otherwise. The damage done to minority teenagers is far worse. however. because minimum-wage legislation has rendered them unemployable. not of legislative fiat. Teenagers suffer most from the adjustments required by an increase in the minimum-wage rate. minimum-wage legislation hurts the least employable by making them unemployable. If a business cannot simply pass along its new labor costs. it must somehow absorb them--by eliminating workers rendered unproductive by the new minimum wage. The minimum wage law says that his choice will not be based on economic criteria. But ours is a world of scarcity. cannot produce very much. the employer can discriminate against the black worker at zero cost. they lose income immediately. If the labor costs of businesses are increased and they succeed in passing on the costs to consumers in the form of higher prices. First. the disemployed goods are human beings. and some of the supply will become "disemployed. what are his incentives? His incentives are [those] of preference indulgence. Some opponents of the minimum wage argue that it aggravates inflation by pushing up the costs of individual businesses. the present unemployment rate for all teenagers actively seeking jobs is 16. This fact has important implications.
. and wealth is a product of the market process. any artificial increase in labor costs can produce so-called cost-push inflation. An individual will not be hired at $5. If there were no floor price on labor. and businesses cannot always arbitrarily increase the prices of their products simply because the government has arbitrarily increased their costs. According to the Bureau of Labor Statistics. Contrary to the claims of many members of Congress. it must be based on  noneconomic criteria. that requires that employers pay the same wage no matter who is hired. experience. In such a world. in the case of minimum wages. If there is a law. as employers will use fewer people to produce the same amount of work. And for expository simplicity. To increase wage rates without either an increase in productivity or a shift in consumer preferences requires coercion. if the government coercively raises the price of some good (such as labor) above its market value.05 an hour if an employer feels that he is unlikely to produce at least that much value for the firm. and skills they needed to command a higher wage. teenagers cannot gain the ex. teenagers could offer to work for a lower price until they had gained the training. Therefore. First and foremost.35 an hour and he must pay the white $3.perience and skills that would make them employable at higher wages later. such as the minimum wage law. an hour. least skilled.9 percent. which illustrates that all the hard work in the world cannot compete with a high rate of capital investment. individuals whom employers perceive to be incapable of producing value at the arbitrarily set minimum rate are not hired at all. This is common business sense. This distinction between voluntary and coercive methods of increasing wages is essentially a difference between creating wealth and redistributing wealth. government cannot create wealth by simply passing new laws. more than  double the overall average. which would be possible only if the real supply of money was increased. This is quite distinct from a general increase in the level of prices. It is quite possible to raise certain wages by excluding competing labor from the relevant markets. pass them on to consumers in the form of higher prices. If he wishes. and least productive. The damage done to teenagers is twofold.000. or even $1.second worker will be much more productive.
According to the Census Bureau's "Current Population Survey. For example." A 1983 survey. The majority staff director explained that the CBO had "provided information that was not requested. . indicate how much unemployment will be generated in any particular instance. McKenzie and Curtis Simon estimated that an increase in the minimum wage to $4. This would effectively increase the costs of discrimination for those employers who wished to practice it. as suggested by AFL-CIO president Lane Kirkland.05. The majority staff of the House Education and Labor Committee sent the study back and asked for a new version that lacked any reference to the bill's prospective impact on unemployment and  inflation. "Time-Series Evidence of the Effect of the Minimum Wage on Youth Employment. It cannot.968 and three or four mouths to feed is often used as an example. and racial groups in the population. (DRI). by its very nature. the truly needy. He predicts that a $1 increase in the minimum wage would eliminate very few jobs. and Econometrics Economic theory demonstrates that minimum-wage legislation will inevitably create unemployment. Senate Committee on Labor and Human Resources of the General Accounting Office found virtually total agreement that employment is lower than it would have been if no minimum wage existed. It is not surprising that AFL-CIO economist John L. the 1983 Report to the U. those who were discriminated against could compensate by offering their labor at a cheaper price." found that studies conducted between 1973 and 1983 generally agreed that a 10 percent increase in the minimum wage would result in a 1 to 3 percent reduction in  teenage employment.000 jobs. According to Zalusky's model. government cannot create wealth simply by passing laws. By no means are such government-created inequalities fair or just. the proposal to raise the minimum wage by nearly 40 percent could result in a 4 to 12 percent drop in the employment of teens. who lose their jobs. the DRI model ignores potential workers who are not seeking employment and therefore are not counted in the official unemployment statistics.S. Many proponents of higher minimum-wage rates insist that the teenager and minority argument is bogus. This is the case even in periods of substantial economic growth. relative to their share of the population or the em ployed work force. it is the least employable.2 percent of working adults are earning the minimum waqe. those who can command only the minimum and are discriminated against have no way to fight the problem. a $1 increase would eliminate 450. Given these findings. they claim.61. First. Statistics. created for the union by the econometrics firm Data Resources Inc. the 46 percent rise in the minimum wage between 1977 and 1981 destroyed 644.Because no one is allowed to work for less than a set minimum. Theory. and the winners either earn wages above the new fixed price or have protected jobs. for instance. If wages were not fixed at a certain minimum. . . "The evidence is now in.000 jobs among teenagers alone. and his "hunch is that a wage hike would provide a mild stimulus" to economic  growth. Zalusky says. Any statistical or econometric model requires that some theory be used to  determine what data are needed to test it. Minimum-wage legislation. . The economic output lost in  1995 would total $70 billion (in 1982 dollars). citing a General Accounting Office study. But what about those who are actually struggling to live on the bottom rung of the economic ladder? Is the government helping them by arbitrarily establishing the minimum living wage? As noted earlier. The distortions caused by fixing the price of labor produce definite losers and winners." The Senate Republican Policy Committee.35 to $4. A proper accounting would include all unemployed workers. not just those seeking employment. Furthermore.000 to 500. This is simply not the case." over 76 percent of all minimum-wage earners are not heads of households. gender. According to the 1981 Report of the Minimum Waqe Study Commission.
. Such laws succeed only in redistributing the existing wealth of society. Zalusky's casual dismissal of theoretical constructs implies that his model is somehow theory-free and concerned with only the objective numbers. Zalusky disputes these findings. However. Teenage workers. but those on higher rungs climb up. The severity of the employment loss varies among different age. A cursory study of demographic statistics suggests that this example does not accurately reflect the minimum-wage-earning population.9 million jobs by 1995. A recent study by Clemson University economists Richard B. numerous statistical studies are in rare agreement in their support of a causal relationship between minimum wages and unemployment. is primarily intended to help adults trying to support a family. the Bureau of Labor Statistics found that only 2. this loss has little importance when compared  with the 11 million jobs that the model predicts would be created in the same period. than adults. and the findings of dozens of major economic  studies show that the damage done by the minimum wage has been far more severe than even the critics . estimated that increasing the minimum wage  from $3. have greater job losses.000 and 619. two theoretical assumptions of Zalusky's model make its results quite deceptive. The minimum-wage earner trying to make ends meet with an annual income of $6. .000 jobs by that year and 1. In fact. But one of the most destructive aspects of wage fixing is that it discourages a large number of potential workers from looking for jobs.65 by 1990 would cost 764. Minimum-wage legislation fosters economic inequalities by creating a gap in the economic ladder: those on the bottom rung are kicked off. The political embarrassment created by such estimates was graphically illustrated recently when the House Democratic leadership suppressed a Congressional Budget Office study that predicted a loss of 250. Zalusky claims that such "real world evidence" casts doubt on the "theoretical constructs" of economics. predicted.000 jobs during the next eight years. would eliminate between 124. However.000 jobs if the minimum wage was increased to $5.
As F. by eliminating the jobs of those who need work most: the poor. Such a scenario." It is Big Labor and its political representatives that perpetuate the minimum-wage myth. Higher wages can be obtained only by excluding some workers from the relevant labor markets. will try to move forcefully on the [minimum-wage] issue. A growing economy creates jobs. Indeed. Unions attempt to fix or limit the supply of labor in a particular market. for nonunion workers. A more accurate accounting would compare the number of jobs created under minimum-wage restrictions with the number of jobs that might have been created in the absence of those restrictions. the union members. labor unions and their influential friends in Congress will make big gains. Who Benefits from Minimum-Wage Legislation? Labor unions and their members are the most obvious beneficiaries of government-imposed minimum wages. To fully understand how unions gain from minimum-wage legislation." Conclusion Regardless of the intentions of its supporters. under pressure from organized labor." the median weekly wage for union members is $439. the hourly wage is $10. all Americans will suffer. In this sense. The difficulty of putting numerical values on what would have happened had the government not interfered. "People who are damaged by minimum-wage legislation are not an effective pressure group. of unique privileges which no other associations or individuals enjoy. They have become what they are largely in consequence of the grant. such policies will hurt every-one. it is an extremely shortsighted policy that can only breed destruction. the young. provide a floor from which we can upgrade your compensation through collective  bargaining. Such considerations strongly suggest that most studies. As James Buchanan pointed out. and the overall quality of life declines. including the DRI model. Hanley stated in a catering industry employees' publication. The success of a union depends on its ability to maintain higher-than-market wages and provide secure jobs for its members. As the established elite of the workforce. and those suffering from discrimination.
. According to a 1987 document entitled "Employment and Earnings. As would be expected. A net decrease would indicate that the minimum wage had destroyed more jobs than the market process had been able to create in the same period. The losers are those excluded from the market. have underestimated the destructive effect of minimum-wage legislation on employment. minimum wages further increase their gains by raising employers' labor costs. the proposed minimum-wage legislation cannot achieve their stated goal of raising the real income of the poor to a more livable level. representing 90 percent of all unions. What has been touted as a matter of basic economic justice turns out to be a self-serving issue for many of its supporters. whereas the groups that support  minimum wages. As long as union members earn wages above the minimum rate. Minimum wages may generate considerably more unemployment than such studies estimate. and labor leaders want to see progress now that  Democrats control both chambers." indicates that the numbers have not captured and cannot capture the whole story. Unfortunately. the unemployed. it is $325. Indeed. Because union members already enjoy institutionally protected jobs. however. The market has somehow compensated for past legislative foolishness. It is misleading to claim that a minimum wage does not create a net decrease in the total number of jobs. compounded by the proponents' willingness to "throw numbers out till nobody can have faith in the numbers. "Unions have not achieved their present magnitude and power by merely achieving the right of association." A labor union's ability to maintain special privileges for its members is reflected in the income data of the Bureau of Labor Statistics. a union will quickly lose its members. everyone else will lose. one must consider the essential nature of unions. business becomes more and more unproductive. has not yet occurred. namely the labor union interests being protected. It is not surprising that the AFL-CIO.An even greater problem with the model is that it ignores the increase in employment that might have occurred if a minimum wage had not been imposed in the first place. In the long run. union members are on the receiving end of the minimum wage's redistribution process. The advocates of minimum-wage laws-shrouded in the rhetoric of fairness and economic justice--always come back to roost in Washington. The winners are those still included in the labor market. Unions played an important role in helping the party take back the Senate. If the minimum wage is increased. Political pressure from the AFL-CIO is the factor primarily responsible for breathing new life into the debate over the minimum wage. People willing to work for less than the government's minimum are not allowed into the labor market at all. their positions are made more secure by the government policy that eliminates those who might undercut the union wage. by  legislation and jurisdiction. A. although possible if the minimum was fixed high enough. Hayek has pointed out. "Congressional Democrats." A second barrier tends to insulate union members from the changes that a minimum-wage increase requires of others. has lobbied hard for another increase in the minimum wage.97 versus $8.12. union leader Edward T. Although unions already hold privileged positions in labor markets. . which raises the value or price of the labor available within that market. If it cannot offer the benefit of higher wages. there is a good chance that they will be the last fired in any cost-cutting campaign by businesses trying to cope with the new costs imposed by a higher minimum wage. Based on a 40-hour week. . "The purpose of the minimum wage is to . are much more effective in the political process. As unemployment increases. labor unions are the main political force behind minimum-wage legislation. a union functions as a redistributive institution.
and might even increase employment slightly in some instances.org/daily/2130
Mythology of the Minimum Wage
Mises Daily: Wednesday. we should expect minimum wage laws to affect teenagers and those with less education. There are a few economists who have been leading the charge for higher minimum wages. This policy has the largest affect on those with the least education. if this were true — if employers could get higher productivity out of less educated and experienced workers by paying higher wages — they would be willing to do this without minimum wage legislation. have conceded that minimum wages increases do not affect employment significantly. In the 18-19 age group unemployment was 15. and the jobs it kills were lousy jobs anyway. and maturity. For those aged 16-17 unemployment was 19. Mackenzie
Once again politicians and pundits are calling for increases in the legal minimum wage.6% in 2005. But the economists who make this case claim to have empirical evidence that proves them right. Landsburg notes that critics of minimum wage laws emphasize that they have a disproportionate effect on teens and blacks.The unemployment rate for white teens in the 16-17
. or better still to near $10 an hour. May 03. Economists David Card and Alan Krueger have published studies of the fast food industry indicated that small increases in the minimum wage would cause only minor job losses." Real statistics indicate that the critics of minimum wage laws were right all along. Of course. Economists connected with the Left -orientated Economic Policy Institute and the Clinton Administration have concocted a rational for minimum wage increases.7%. Minimum wage laws do affect ethnic minorities more so than others. and this leads to higher worker productivity. Even some free market leaning economists. While it is true that minimum wages do not drive the national unemployment rate up to astronomical levels. Consequently. The economic case for minimum wage increases has gained some ground with public and even professional opinion. It is almost impossible to maintain the old argument that minimum wages are bad for minimum-wage workers. Employers pay a wage no higher than the value of an additional hour's work. 2006 by D. The economic case against minimum wage laws is simple." If the minimum wage went up at least to $7. Eliminating minimum wage laws would reduce unemployment and improve the efficiency of markets for low productivity labor. Some of these economists have obvious ideological leanings. millions would be lifted out of poverty. Such studies ignore the fact that the current level of minimum wages are already causing significant unemployment for some workers. Yet unemployment was 17.8%.3% for those aged 16-19 years. Market wages are supposedly immoral. it does adversely affect teenagers and ethnic minorities. Thus workers will be worth paying a minimum wage once their employers are forced to pay these wages. like Steven Landsburg.http://mises. People need to earn a "living wage. These studies by Card and Krueger show only that a small increase in minimum wage rates might not cause much of an increase in unemployment. But he dismisses these critics because "minimum wages have at most a tiny impact on employment … The minimum wage kills very few jobs. According to the Bureau of Labor Statistics the unemployment rate for everyone over the age of 16 was 5. Raising minimum wages forces employers to dismiss low productivity workers. Their reasons are familiar. According to these economists higher wages make employees more content with their jobs.W. job experience.
Unemployment for whites and Asians in this age group were 4. Of course. 3.8% in 1907. 2.9% respectively. Mainstream economic theory lacks any basis for judging the effects of income redistribution. Consequently. Landsburg might maintain that most of these lost jobs are lousy jobs that teens will not miss.3% in 2005. but they obviously are worthwhile to the workers and employers whom these laws affect. they become advocates of a political agenda. The unemployment rate for blacks and Hispanics aged 25-34 were 11. With teen unemployment in double digits — running as high as 40.8% at age 18-19 and 9. these figures decrease for older minorities. DeLong thinks that minimum wage laws can help to avert poverty — workers who keep their jobs at the minimum wage gain much.8% in 2005.6%. Hispanic. 1. For Asians aged 16+ the unemployment rate was only 3. Once economists depart from discussing efficiency conditions and begin to speak about income redistribution. Economists have no scientific methods for comparing gains and losses through income transfers. Card.9% — it is obvious that some labor markets are not clearing.4% and 3. economists like DeLong. and black Americans cannot also reach the 2-3% range of unemployment. Asians tend to attain higher levels of education than blacks. Blacks aged 18-19 and 20-24 had 25. while unemployed workers lose little. A comparison of black to Asian unemployment is revealing. 4. According to the US Census.1% and 5.1%. In the 35-44 age group the unemployment rates for these four ethnicities were 7. These figures are only a fraction of the unemployment rates experienced by blacks in 2005.5%. Hawaii has an unemployment rate of 2. According to textbook economics we attain the highest level of economic efficiency when markets clear. National
. we achieve economic efficiency when markets clear because this is how we realize all gains from trade. rather than objective scientists. As already noted. and 2. 2..4% in 1919 and 1918.7% in 1902.7% in 1906. There is no reason why white.6% at age 20-24. Unemployment rates in the 25-34 age group are higher than for the 35-44 age group. 1. The jobs lost to minimum wage laws might not seem worthwhile to DeLong or Landsburg.3% in 1927.1%.7% and 19.3% in 2005. Income transfers benefit some at the expense of others." but one could also argue that these jobs are quite important because they are a first step in gaining job experience and learning adult responsibility.2%. Why? Because they want to use such policies to redistribute income. some states have unemployment rates as low as 3%. 5.2% in 1925. According to mainstream economic theory. For Hispanics unemployment was slightly lower — 17. Thus minimum wage laws are relatively unimportant to Asian Americans.7%." Yet they find double digit teen unemployment acceptable when it derives from government intervention. when we realize the maximum gains from mutually advantageous trade. If labor market imperfections led to such levels of unemployment.4%. and 3. Part of the problem with this argument is that it involves arbitrary value judgments.9% unemployment in 2005. Supporters of minimum wage laws do not realize that prior to minimum wage laws the national unemployment rate did fall well below 5%. A second problem with the case against minimum wages is that they affect older workers too. Virginia now has an unemployment rate of 3. The same figures for Hispanic and black teens were 25% and 40.9%. Wyoming has an unemployment rate of 2. Even today. and Krueger would call for government intervention to correct these "market failures. In the United States.8% in 1926. Asians are able to attain unemployment as low as the 2-3% range.1%. national unemployment rates were 3. For Asians in the 20-24 age group unemployment was 5. Why should the value judgments of a few armchair economists matter more than the interests of would be employees and employers? These jobs may be "lousy jobs.4% in 1923. workers in the 20-24 age group appear to be affected by minimum wage laws.age group was 17. 1.
In any case. Given these figures. economic theory and available data indicate that minimum wage laws do result in economic inefficiency. The implementation of a "living wage" would only increase these losses. it is quite arguable that minimum wage laws keep the national unemployment rate 3 percentage points higher than would otherwise be the case. Do proponents of living wages really want to see unemployment rates among ethnic minorities and teens climb even higher? The economic case for a living wage is unfounded. However. Unfortunately. This being the case. minimum wages will increase unless public opinion changes significantly. If minimum wage laws are responsible for keeping the national unemployment rate 3 percentage points above where it would otherwise be. If politicians wish to pursue sound policies.unemployment rates seldom drop below 5% because some categories of workers are stuck with double digit unemployment. Eliminating minimum wages might not increase GDP as much as this "law" indicates. then the losses to minimum wage unemployment are substantial. Higher "living wages" would only make these problems worse. Since Okun's law is an empirical proposition it is certainly not constant. most politicians care more about political expediencies than sound economic policy. the elimination of minimum wage laws would surely have a positive effect on GDP. Current minimum wage rates do create high levels of unemployment among low productivity workers. The alleged moral case for a living wage ignores the fact that minimum wage increases adversely affect the very people whom advocates of living wages intend to help. they should consider repealing minimum wage laws.
. Economist Arthur Okun estimated that for every 1% increase in unemployment GDP falls by 2. especially where teens are concerned.5-3%.