“The problem is not that today’s labor leaders are motivated by racial animus. Rather, it’s that so much of what they advocate in the name of expanding the middle class is in practice preventing many blacks from joining its ranks. Minimum-wage laws, which determine the lowest price for labor that an employer may pay, are one of the more obvious examples of this phenomenon. But to understand why these laws make it harder for blacks to find jobs, it first helps to look at how minimum-wage laws impact labor markets in general. And it turns out that economists, a famously argumentative lot, tend to agree that minimum-wage laws destroy jobs. In fact, polls have shown that more than 90 percent of professional economists contend that increasing the minimum wage lowers employment for minimum-wage workers. Even highly respected economists, such as David Card and Alan Krueger, who are skeptical of the consensus view, concede that the minimum-wage hypothesis “is one of the clearest and most widely appreciated in the field of economics.”3 Why? Because a basic tenet of economics is that a rise in the cost of something tends to lower demand for it. Put another way, an artificial increase in the price of something causes less of it to be purchased. When that something is the price of labor, the result is a labor surplus, also known as unemployment. “It’s simple,” wrote Gary Becker, who won the Nobel Prize in Economics in 1992, “hike the minimum wage, and you put people out of work.”4
In 2008, economists David Neumark and William Wascher published a book that surveyed the minimum-wage literature of the previous three decades. They reviewed more than one hundred academic studies on the impact of such laws and found “overwhelming” evidence that younger, lesser-skilled workers suffer what economists call “disemployment effects” or a loss of employment when the minimum wage goes up:
Our overall sense of the literature is that the preponderance of evidence supports the view that minimum wages reduce the employment of low-wage workers. . . . Moreover, when researchers focus on the least-skilled groups that are most likely to be directly affected by minimum wage increases, the evidence for disemployment effects seems especially strong.”5
When the government mandates that an employer pay someone more than the employer thinks the person is worth, fewer people get hired.
There is no other subject that is more agreed upon in economics than this one. To have 90 percent of experts in any field agree on something is very rare because it means the normally big government interventionist economist who loves trying to fix the economy with government mandates cannot deny the evidence that minimum wages have no net gain on the economy overall and only hurts those who are the poorest. By definition, if you are being paid minimum wage, you are the least valuable person in the market (most are between the ages of 18-24). This means that your value in the market is the first to be cut off if the numbers do not make sense, which explains why Jason L. Riley says that the only actual effect of minimum wages is that fewer people are hired. Companies only have so much money they can spend on the labor that accomplishes their work. It is necessary for these companies to have someone start off at an entry-level pay, but these people are the most risky to them. Their other employees make more because they are more valuable to the company. If the company is forced to pay more, they have to choose the least valuable people or their customers to turn against. If they choose these entry-level people over their customers, then they have to raise the cost of their product or service. If they put their customers first, they choose to keep their prices the same and get rid of the people they are forced to pay more. When the government forces companies to pay $9 an hour to entry-level positions starting out instead of $7.25, the company is having to eat that $1.75 an hour. The worker is not actually worthy of that extra pay, they do not just come into work worth that extra $1.75 an hour. A company’s first loyalty is customer satisfaction and service; employees come and go. Employees can be replaced, or they can work the current employees a few hours more or make them work a bit harder since minimum wage also bumps up their pay inadvertently.
Minimum wages are a perfect example of politicians tricking the public into thinking that they are getting more money for doing no extra work nor becoming more valuable to the economy. In his book on economics, Thomas Sowell (famous economist) talks about how economics, like physics (a fixed thing where the rules never change), is something that is limited. You cannot trick economics by modifying it. No matter what you do, there is still a limited amount of resources. “By its very nature as a study of the use of scarce resources which have alternative uses, economics is about incremental trade-offs, not about ‘needs’ or ‘solutions.’ That may be why economists have never been as popular as politicians who promise to solve our problems and meet our needs.” When someone shows up one day and tells an employer they must pay more money without it correlating to any change in the people, then the trade-off will be fewer people being employed. This is because no matter how big your government is or how big your company is, there is only so much wiggle room. People are paid what they make for a particular reason; what is left over between what they pay their employees and to maintain their equipment is paid to management and is reinvested into the company.
An industry example that Jason talks about is the construction industry. Jason talks about an act called the Davis-Bacon Act. This act favored union workers and required an extremely high minimum wage for brick masons. This led to blacks being less employed and government contracts being extremely inflated to pay for these wage rates (remember, governments don't have their own money tree, they steal from us to pay these wages). Jason explains the difference in unionized brick mason wages when he says, “Davis-Bacon rates are typically 15 to 40 percent higher than average wages for the same job. In some cases, Davis-Bacon rates more than double the competitive wage.” In Nassau and Suffolk counties on New York’s Long Island, for example, Davis-Bacon required a minimum wage for brick masons of $49.67 per hour, according to a 2008 Wall Street Journal editorial, “though the more common area wage for that work is $22.50.” If this were not bad enough, those who are most harmed by these unionized acts are blacks, Jason explains the situation like this, “Blacks have long had a separate legitimate gripe with Davis-Bacon because most black construction workers today, just like in the 1930s, aren’t unionized. “Democrats support these blanket Davis-Bacon policies, even though minorities are still victimized by the wage law,” reported the Journal. “A 2001 study by economists Daniel Kessler of Stanford and Lawrence Katz of Harvard found that when states have repealed their Davis-Bacon laws, this ‘is associated with a decline in the union wage premium and an appreciable narrowing of the black/nonblack wage differential for construction workers.’” In fact, Davis-Bacon has been so effective at putting blacks out of work that 1930, the year before the law passed, was the last year that the black jobless rate was lower than the white rate.” Whether the intention in this particular case was to keep blacks out of the construction industry does not ultimately matter; the reality is more important, that it has kept them out for decades. Thirty years before the Great Society Welfare state came around changed everything for the Black community in the 1960s when the black unemployment rate was lower than whites. To me, this is one of the most staggering facts about the economics of the black community since being freed from slavery. (The only other one was that things were going well for blacks before the welfare state was started in the 1960s, but once it was started, things took a nosedive in every way).
Sadly enough, this could be put under the “innocent politicians are stupid with good intentions but bad results box,” but things are much more nefarious than that.
“Here is Senator John F. Kennedy of Massachusetts, who supported increasing the minimum wage, addressing an NAACP official at a Senate hearing in 1957:
Of course, having on the market a rather large source of cheap labor depresses wages outside of that group, too—the wages of the white worker who has to compete. And when an employer can substitute a colored worker at a lower wage—and there are, as you pointed out, these hundreds of thousands looking for decent work—it affects the whole wage structure of an area, doesn’t it?
Roughly a decade later, in 1966, Senator Jacob Javits of New York would make a strikingly similar argument in favor of raising the federal minimum. “I point out to Senators from industrial states like my own that a minimum wage increase would also give industry in our states some measure of protection,” said Javits, “as we have too long suffered from the unfair competition based on substandard wages and other labor conditions in effect in certain areas of the country—primarily in the South.”
Clearly, both of these senators (in different decades from each other) wanted to protect the racial majority's jobs since the majority of America's population has always been white (Whites make up around 60 percent while blacks make up about 14 percent). One could say that those men lived a long time ago, but we must ask the question that even if the politicians today do not have the same racist intentions, the politicians are doing the same exact acts of mandating minimum wages that the racist has used in the past. Jason puts it like this, “The issue today is not whether proponents of the minimum wage are motivated by the same racial animus that characterized earlier proponents. The issue is whether these wage mandates continue to harm blacks disproportionately, regardless of intent.” In many ways, it shows clear neglect of economics by the politicians who posed price controls on human labor. There are decades of data on how these government interventions negatively affect every entry-level worker regardless of race. This is not a new problem, though; a famous French Economist had these exact problems with people who had economically uninformed political theories. “A science of economics must be developed before a science of politics can be logically formulated. Essentially, economics is the science of determining whether the interests of human beings are harmonious or antagonistic. This must be known before a science of politics can be formulated to determine the proper functions of government.”
I want to bring us up to the present day (or at least when Jason was writing his book). Jason brings out the data on the negative effects of minimum wage even though politicians like Barack Obama wanted a minimum wage hike. “In his first State of the Union address after being reelected, Obama called for increasing the federal minimum by 2.4 percent, from $7.25 to $9 an hour, and indexing it to inflation.” The reason why he wanted this was because he concurred with Democratic politicians of the past.
“The belief that minimum-wage laws are an effective antipoverty tool has a long pedigree on the political left. “Without question,” said President Roosevelt in 1938 after Congress passed the federal minimum, “it starts us toward a better standard of living and increases purchasing power to buy the products of farm and factory.” Sixty years later, President Clinton would say at a press conference that upping the minimum wage would “raise the living standards of twelve million hard-working Americans.” Senator Ted Kennedy would declare that “the minimum wage was one of the first—and is still one of the best—antipoverty programs we have.”
Let’s see what data came up with about the actual reality of the impact of minimum wage, not these well-intentioned politicians thoughts.
The reality is that as the minimum wage has risen, the gap between the overall jobless rate and the jobless rate of young people has widened. This holds true at the federal and state level. “At least 10 states have raised their minimum wages above the federal level in the last decade, largely in response to union lobbying,” reported the Wall Street Journal in 2009. “Four states with among the highest wage rates are California, Massachusetts, Michigan and New York. In each case, studies have shown that their wage policies killed jobs for teens.” This phenomenon extends beyond U.S. borders, by the way. A study of seventeen other countries found a “highly negative association between higher minimum wages and youth employment rates,” said the Journal. “It also concluded that having a starter wage, well below the minimum, counteracts much of this negative jobs impact.”
Jason clearly rejects minimum wage; instead, he says that a job below what they think is minimum wage is better than no job at all.
With all due respect to the late Ted Kennedy, the best antipoverty program is not the minimum wage. Rather, it’s a job, even if it’s an entry-level one. Most poor families don’t have any workers. Raising the minimum wage does nothing for them, and to the extent that it reduces their employment opportunities, it’s a net negative. Reducing the number of entry-level jobs keeps people poor by limiting their ability to enter or remain in the workforce, where they have the opportunity to obtain the skills necessary to increase their productivity and pay and ultimately improve their lives.
Unions support minimum wages not because they want to help the working poor but because they want to protect their members, who already have jobs. “Just as businesses seek to have government impose tariffs on imported goods that compete with their products, so labor unions use minimum wage laws as tariffs to force up the price of non-union labor that competes with their members for jobs,” wrote Thomas Sowell in Basic Economics.24”
According to the Nobel Economist Goerge Stigler, “Around 5 percent of hourly workers in the United States earn the minimum wage, according to the 2012 data from the Bureau of Labor Statistics and the Census Bureau. Most are 25 or younger and 69 percent of them work part-time. They are not their family’s sole breadwinner; they come from households that don't depend on their earnings.” In the intention to help the 5 percent that normally does not depend on the money they work to live, they have hurt many others who do need their job to be able to live. If it is harder for someone to get their first job, they will just stay out of the workforce for longer. When young adults postpone working, they are most likely to get involved with immoral things and become idle. Black economists like Thomas Sowell and Hank Williams talk about growing up, working odd jobs around town when they were younger than 15 years old. This allowed them to get some experience under their belt before many kids would be able to get their first job.
As we can see, the government trying to help black people has ended up hurting them in the end. By attempting to do economics when they do not understand economics, they have hurt not only blacks but everyone else. Entrepreneurs know what people are worth; as people work somewhere they are paid more and more because their value goes up. The government does not make someone valuable just because they say they are. The market says the value of people. If a customer is only willing to pay so much for a good or a service and an employee only has to deliver so much of the labor needed to accomplish that, then that is their worth. Which basically comes back to the employer does not give the employer value, but they are merely responding to the value that the customer gives to their employees’ work. In an economy that is not planned by the government, the one with the ultimate power is the customer. This means that the government showing up and pretending like they run the show is just a nuisance and leads to the lowest-value people in the market getting hurt. These people will not stay at that value, but everyone must start somewhere. The reason why most of the minimum wage earners are under 25 is that more people eventually get raises, and thus, earn more money. I want to end this chapter with Jason’s summary of the situation of minimum wages.
“The government can mandate that someone be paid at a level above his productivity, but it can’t (yet) mandate that he be hired in the first place, or that he keep his job after the cost of employing him rises. So some people will lose their job or never be hired, and others will get a raise. But on balance, are low-skill workers better off?”
Tim Bankes II
Tim is a Christian author. His worldview that informs his writing is Calvinist, Baptist, and Libertarian. His main series is his Christian picture book series, "About God for Kids", where he discusses the attributes of God in a way kids can digest. He also wrote a Christian Romance novel, libertarian book for beginners, and Christian coloring books. He graduated with a Bachelor's in Biblical Studies from Southwestern Baptist Theological Seminary.
He has written a book on freedom called “Are You Free” (If you are into listening to books I have it in audio also, Are You Free Audiobook )and he has written multiple children’s books about God. Be Sure to check out the podcast version of the blog, Labor for Truth Podcast. And check out “The Truth About” YouTube Channel. You can find his works at his amazon author page, https://amazon.com/author/timbankes. He even has a free digital ebook on how God is the creator. Get your free copy today at, Greater Creator .Also If you are into Christian Fiction, he has made his first book in his Futuristic Christian Fiction series free, Her Dying Wish