The Minimum Wage Law; R. Kazmann

Raboy (Washington, D.C.: Institute for Research on the Economics of Taxation, n.d.), p. 11. 2. Jean-Baptiste Say, A Treatise on Political Economy (New York: Augustus M. Kelley Publishers, 1971), p. 161. 3. Ibid., p. 139. 4. George Gilder, Microcosm (New York: Touchstone, 1989), pp. 61-62. 5. Ibid. 6. Norman Ture, "Supply Side Analysis and Public Pol icy," Essays in SupplySide Economics, p. 13. 7. George Gilder, Recapturing the Spirit of Enterprise (San Francisco: ICS Press, 1992), p. 165. 8. Milton Friedman, Price Theory (New York: Aldine Publishing Company, 1976), p. 7. 9. Paul Craig Roberts, "The Breakdown of the Keynesian Model," Keeping the Tablets: Modern American Conservative Thought edited by William.F. Buckley Jr. and Charles R. Kesler (New York: Harper & Row, 1988), p. 229. 10. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, Volume 1 (Chicago: University of Chicago Press, 1976), p. 37.

11. Warren T. Brookes, The Economy in Mind (New York: Universe Books, 1982), p. 12. 12. Ludwig von Mises (Chicago: Contemporary Books, 1966), pp. 740-741. The Minimum Wage Law by Raphael G. Kazmann· T he minimum wage law is based on the assumption that some minimum hourly rate of pay should be legislated so that people will have a minimum income to support themselves and their families. The law makes it illegal for an employer to pay an hourly rate lower than the minimumwage specified by the Congress. In line with this reasoning, the higher the minimum wage, the more prosperous the workers will be. If this is so, why not set the minimum hourly Professor Kazmann lives in Baton Rouge, Lou isiana. wage at $20 so that everyone will be better off? The proponents of the minimum wage have avoided taking this step. A basic law of economics states that the higher the price of something, be it a com modity or labor, the smaller the quantity demanded. In simple English: the higher the price, the smaller the sales. When a mini mum wage is established at a level above the one that would be determined by market forces, employment opportunities are usu ally reduced for the least productive work ers because their services are priced too high for the market. In fact as the minimum 380 THE FREEMAN • JUNE 1995 wage is raised, even some workers who had Comparisonof Youth and been employed are discharged simply be-UnemploymentRates by Race cause their services do not produce value in (males) excess of their wages (plus Social Security Min. White Blacktaxes, vacations, medical insurance, and so Year Wage General 16-17 16-17 on). We can deduce that the principal impact of minimum wage legislation is to reduce the 1948 3.8 10.2 9.4 opportunities for useful employment by the 1949 5.9 13.4 15.8 1950 .75 5.3 13.4 12.1potentially least productive individuals. 1951 3.3 9.5 8.7Thus the most economically vulnerable por-1952 3.0 10.9 8.0 tion of the population is being prevented by 1953 2.9 8.9 8.3 the government from becoming self-sustain- 1954 5.5 13.4 14.4 ing. This outcome may not have been an-1955 1.00 4.4 11.3 13.4 ticipated by the well-intentioned legislators 1956 4.1 10.5 15.0 1957 4.3 11.5 18.4who passed the minimum wage law as part 1958 6.8 15.7 26.9 of the Fair Labor Standards Act of 1938. 1959 5.5 14.0 25.2 The enforcement of minimum wage leg-1960 5.5 14.0 24.0 islation accomplishes two things: (1) it 1961 1.15 6.7 15.7 26.8 1962 5.7 13.7 22.0makes low-skilled labor more expensive 1963 1.25 5.7 15.9 27.3than it would otherwise be, thus fostering 1964 5.2 16.1 24.3 labor-saving devices that higher priced labor 1965 4.5 12.9 23.3 creates (and raising the prices in the affected 1966 3.8 10.5 21.3 industries), and (2) it reduces the numbers of 1967 3.8 10.7 23.9 young and low-skilled workers entering the 1968 3.6 10.1 22.1 1969 1.30 3.5 10.0 21.4labor market where training and apprentice-1970 4.9 13.7 25.0 ship would later permit the trainee to obtain 1971 5.6 15.1 28.8 a better, higher paying job. 1972 5.6 14.2 31.0 Martin Feldstein described matters clear-1973 4.9 12.3 27.0 ly: "The minimum wage law has an unam-1974 1.60 5.6 13.5 33.7 1975 1.80 8.5 18.3 38.1biguously harmful effect on some young 1976 2.00 . 7.7 17.3 37.5 workers. Even if an individual were willing 1977 2.20 7.0 15.0 39.2 to 'buy' on-the-job training by taking a very 1978 2.65 6.0 13.5 36.7 low wage for six months or a year, the 1979 2.90 6.8 13.9 34.2 1980 3.10 7.1 16.2 37.5minimum wage would not permit him to do 1981 3.35 7.7 17.9 40.7 so.... For the disadvantaged, the mini-1982 10.1 21.7 48.9 mum wage law may ha~e the ironic effect of 1983 9.9 20.2 48.8 lowering lifetime incomes by a very large 1984 7.4 16.8 42.7 amount." (The Public Interest, Fall 1973) 1985 7.2 16.5 41.0 1986 7.0 16.3 39.3Civil Rights legislation in its inception was 1987' 6.2 15.5 34.4 most benign by removing legal barriers to 1988 5.5 13.9 32.7 the employment of blacks and other minor-1989 5.3 13.7 31.9

ities. Inexplicably, however, it ignored the 1990 3.80 5.4 16.4 35.2 impact of minimum wage laws on the em-1991 4.25 6.3 18.1 49.8 ployment of young people just entering the Note: The minimum wage rates have been applied to labor force, particularly on black teenagers. increasingly larger segments of the working population, Yet the empirical evidence illustrates the so the unemployment rates understate the effect of the minimum wage in decreasing the opportunities for first trends, even though any statistical evidence entrants to the labor force. Moreover, as the effect of that pertains to the entire country is likely to inflation is to lower the real cost of the minimum wage, contain inaccuracies of detail. Since 1938, the unemployment rates of teenagers dropped between 1983 and 1989 by one third. Note the abrupt rise in when the minimum was set at $0.25 per unemployment as the minimum wage rose in 1990 and hour, the hourly minimum has risen until, 1991.

in 1981, it was fixed at $3.35; more recently it was increased, in stages, to $4.25 per hour. In 1988 it was 13.4 times what it was originally. Economists have computed that because of inflation the minimum hourly rate, expressed in 1938 dollars, has been between $0.56 and $0.59 since 1974. The coverage of industries subject to minimum wage laws has been extended: between 1967 and 1974, approximately 75 percent of pri vate, non-agricultural workers were cov ered; since 1974, approximately 83 percent have been subject to its mandate. The Impact on the Young The effect of the minimum wage and the increase in the percentage of industry that it covers have had a significant, deleterious impact on the young worker. Between 1948 and 1955 the unemployment rate for young males was about 6 or 7 percentage points higher than the general rate of unemploy ment and there was no significantdifference between the unemployment rates of blacks and whites. After 1955, when the minimum wage was raised sharply, not only did the difference between the general unemploy ment rate and that of the young white male rise to 9 or 10 percentage points, but the unemployment rate of black teenagers rose even more sharply reaching a differential of between 15 and 20 percentage points as compared to the general rate of unemploy ment.

After the increase of 1968, the difference between white teenagers and the general rate went up to from 10 to 12 percentage points; black teenage unemployment rose still more. Since 1973 the unemployment rate for black teenagers has been from 25 to 35 percentage points above the general rate. Walter Williams (Policy Review, Fall 1977), said: "The minimumwagegives firms effective economic incentive to seek to hire only the most productive employees, which THE MINIMUM WAGE LAW 381 means that firms are less willing to hire and/or train the least productive employee which includes teenagers and particularly minority teenagers. By holding all else con stant, such as worker productivity, the min imum wage law gives firms incentive to indulge whatever racial preference that they may hold." The table on page 380, adapted from one published by Walter Williams and supple mented by data from various publications of the Bureau of Labor Statistics, compares the general unemployment rate of males and the corresponding unemployment, by race, of young men 16-17 years of age. These are the people who have minimal skills and experience. The table shows when the out comes discussed occurred.

The principal supporters of the minimum wage have been the labor unions and cor porations that compete with the employers of teenagers. The unions know that when the minimum wage rises the wages of their members rise to maintain the differential between skilled and unskilled workers. The corporations in favor of it understand that the costs of their competitors will dispro portionately increase as compared to their own. It is difficultto understand why a govern ment, ostensibly based on principles of democracy, can pass and enforce legislation that reduces opportunities for the most eco nomically vulnerable segment of the popu lation: black teenagers and white teenagers. From the standpoint of morality and equity, any legislation that makes it harder for teenagers with little skill or experience to enter the labor market should be unaccept able. As we have shown, the minimum wage law not only discriminates against young and inexperienced workers, it discriminates particularly against black youngsters. Not only should the minimum wage not be raised, it should be abolished. Democratic government can do no less. D THEFREEMAN IDEASON LIBERTY The MushroomWars by Richard B. Coffman D rive-by shootings, an abandoned car riddled with bullet holes, a man gunned down before he can pull his .45 caliber pistol. No, it is not gang warfare in an American inner city. These are the mush room wars in the once peaceful forests of the Northwest.