The Minimum Wage Hurts Poor People

Governor Schwartzenegger, in an attempt at a compromise, will propose an increase in the minimum wage from $6.75 to $7.75 per hour, in two $.50 increments. Presumably the reason for this increase is compassion for the poor and disadvantaged. This increase in the minimum wage will have the unintended result of hurting the very people that the Governor wants to benefit.

It is difficult to understand why such an obvious result seems to elude our politicians unless you consider that the only reason a politician would propose an increase in the minimum wage is for political purposes – so that the politician can look “sensitive” to the needs of the poor.

The following essay appears on the web site of Young Americans for Freedom:

Abolish the Minimum Wage

by Paul Smith, Jr.,
Former YAF National Director

“Reduced employment opportunities is one effect of minimum wage legislation. The minimum wage law has imposed incalculable harm on the disadvantaged members of our society. The only moral thing to do is to repeal it.”
Walter Williams, best-selling author and noted economist

“The high rate of unemployment among teenagers, and especially black teenagers, is both a scandal and a serious source of social unrest. Yet it is largely a result of minimum wage laws. We regard the minimum wage law as one of the most, if not the most, anti-black laws on the statute books.”
Milton Friedman, Nobel Prize-winning economist

There is a big lie spoken by many politicians these days. Well, actually, there are many, but one is really prevalent.

The lie: an increase in the minimum wage helps poor people.

A minimum wage helps no one. Except for the politicians who propose it in an effort to look “sensitive to the need of the poor.” After all, we need to help these poor people, and get them all the money we can.

What does the minimum wage actually do?

– It causes unemployment.
Economists don’t agree on much, but this is one thing they do agree on. When you require employers to pay a minimum wage, any worker whose labor is not worth that wage is fired, or never hired to begin with.

– It causes unemployment among teenagers.
As the quote above by Milton Friedman states, it is predominately teenagers who hold minimum wage jobs. If these teenagers are not hired, they are not gaining the experience they need to get ahead in the business world as adults. A minimum wage can cause great damage to the future of our nation’s youth.

– It causes unemployment among blacks.
African-Americans hold a disproportionate percentage of minimum wage jobs. A minimum wage prevents many blacks from being employed. Not so coincidentally, blacks are also disproportionately on the welfare rolls. A decrease in the number of minimum wage jobs can throw more blacks into the welfare trap.

Since we have seen that the minimum wage creates more unemployment and welfare recipients, we should consider the effects of abolishing the minimum wage.

Clearly, employment would increase.

National productivity would increase since we would have a much smaller percentage of our workforce idle.

Welfare rolls would decline.

Individuals who would not otherwise have been employed are employed, giving them a sense of self-respect and accomplishment, where welfare would have destroyed their initiative.

The only downside to abolishing the minimum wage is it would deprive liberals of an easy way to appear sensitive and attract the bleeding heart vote.

Clearly from a strict utilitarian point of view, abolishment of the minimum wage is the proper policy. However, the minimum wage should also be opposed on moral grounds.

The minimum wage is essentially an unfunded mandate by the government upon businesses to the tune of millions of dollars a year. As almost all politicians now agree unfunded mandates are wrong and should be abolished.

Government telling an individual that he cannot provide his labor for less than $5.15 an hour to someone else is morally unjustifiable. The government is telling this person that he has to accept at least the minimum wage for his labor or he cannot work. He may be willing to work but the government will not let him.

As Congress debates both a minimum wage increase and welfare reform, our representatives should keep one thing in mind: the best, and most moral, welfare reform proposal may just be the abolishment of the minimum wage.

Copyright 2000 by Young Americans for Freedom. The opinion expressed does not necessarily represent the views of Young Americans for Freedom.

For additional arguments against the minimum wage, please read the following articles:

Minimum Wage is Maximum Harm to the Poor, by Steve Frank on California Political News

Minimum Wage Increase Hurts Low-Income Families by Craig Garthwaite on Employee Policies Institute

Republicans should be in the forefront of opposing the minimum wage because of its adverse effects on the very people it purports to help.

Update – 9/30/2010:

Apparently both of the links above are no longer posted on the internet.  A commenter posted that it must because they were invalid.  Not so.  Many sites take down papers that are outdated.

Many people currently out of work would be able to find jobs if the marketplace determined the wage rates.  Paying minimum wage is an artificial price setting having no relation to the marketplace.  When employers have a budget for salaries they stop hiring when they reach that amount.  If they could pay a lower wage per hour they could hire more people.  Ask those who are unemployed and unable to provide for their families if they would be willing to work for less than the current minimum wage set by the government.  Is it better to be employed at a lower wage or not be employed at all?

The research on the fact that minimum wage hurts low income wage earners is so extensive that a simple google search will produce hundreds of papers supporting that position.

Here are a few:

Minimum Wage Hurts the Poor – John Stossel 9/27/2010
The Case Against a Higher Minimum Wage – U.S. House of Representatives Committee Report. (Excerpt:  “It is important to recognize that the jobs lost are mainly entry-level jobs. By destroying entry-level jobs, a higher minimum wage harms the lifetime earnings prospects of low-skilled workers.”)
Raising Minimum Wage Hurts Connecticut –  The Day (Excerpt:  “According to research from the University of California-Irvine, the negative effects of wage hikes are overwhelmingly concentrated amongst the most vulnerable employees, particularly young minorities and high school dropouts.”)
Raising the Minimum Wage Hurts Vulnerable Workers’ Job Prospects Without Reducing Poverty – Heritage Foundation (Excerpt: “Similarly, raising the minimum wage brings with it unintended consequences that run counter to lawmakers’ aim of helping the working poor. Like anything else, when the price of labor rises, businesses buy less of it. The role of the minimum wage in raising unemployment is well known and well documented.[1] But even worse, recent research has shown that higher minimum wages reduce teenage education levels and decrease workers’ long-term earnings. Studies also show that the minimum wage does not reduce poverty.”)

The case against minimum wage price setting by governmental authorities rather than letting the market decide wage levels is overwhelming.  Yes, it means that some entry-level and unskilled workers would be working for less than the price fixed by the government, but it would also give those people an opportunity to work, gains some skills and earn some money to support themselves, none of which they can do if they are unemployed.

Update – 11/20/2010

See new post:

Milton Friedman on Minimum Wage