“The long-range solution to high unemployment is to increase the incentive for ordinary people to save, invest, work, and employ others. We make it costly for employers to employ people; we subsidize people not to go to work We have a system that increasingly taxes work and subsidizes nonwork.” – Milton Friedman
Who are minimum wage workers? According to the US Department of Labor, 520,000 of 73.9 million American workers earned the federal minimum wage in 2004. Of these, only 5.3 percent lived in a household with an income below the federal poverty level; 98 percent were between the ages of 16 and 25. In addition, only 15 percent of minimum wage workers still earned the minimum wage after three years.
The small percentage of minimum wage workers who are the primary income earners in households below the federal poverty line have been misled by the Democratic Party and labor union leaders. The minimum wage worker rises each morning to fight an epic battle between the masses and the elite. He works a long day, receives his meager pay, pumps his hard-earned dollars into his gas tank, and then rushes home to eat dinner with his family. Yet, he has trouble putting food on the table, heating his home, and clothing his children. He feels slighted, forgotten, and used.
Democrats, when in power, pledge to help the workingman and immediately begin to lobby for an increase in the minimum wage at the state and national level. Ignoring the fact that the American Economic Review found that 90 percent of economists agree that raising the minimum wage created higher unemployment, the Democrats tell the workingman that the raise will help him. They promise that their initiatives will spread the wealth of our great country, bringing prosperity from top to bottom, providing hundreds of thousands of working Americans a little more meat on their tables. The workingman believes them because he knows no better. He is able to rest easier because the US House of Representatives is on the case.
However, what will our workingman find to result from these minimum wage increases? The exact opposite of his desired results. Instead of spreading the wealth of our great nation, an increase in the minimum wage concentrates it. Instead of increasing the workingman’s real income, an increase in the minimum wage will reduce it. Instead of easing the workingman’s hardened life, an increase in the minimum wage will be further troubling it.
Companies are not limitless entities with ever-expanding pay rolls and bank accounts. Money does not grow on trees in the company garden anymore than it does on the tree in the workingman’s backyard. Businesses are not the workingman’s enemy. They are his best friends; they are the hand that feeds him – quite literally.
Companies in the service and retail sector – the only industries that employ workers at the minimum wage – have fixed payroll allotments. To accommodate a higher minimum wage these companies are forced to cut back on workers and hours. This results in higher unemployment. One worker may receive a slightly less meager paycheck, but another worker will not receive a paycheck at all – hardly the social justice the working man seeks.
The workingman will be further troubled. Because of staff cut backs, he will now wait longer in line at the gas station, at Wal-Mart, or at his neighborhood grocery store. While waiting in line, he is adding no productive value to himself or society. He will also pay a higher premium at all these locations for the service he does receive. Therefore, his hard-earned dollar will buy him less meat to put on his table or fewer presents for his kids.
An unskilled, inexperienced laborer – maybe a son or younger brother – will find most employment doors closed to him, as firms are forced to discriminate against workers whose services do not warrant the high wage the government requires that they be paid. These men will find a permanent barrier to employment raised before them. Now they will never gain the valuable working experience or on-the-job training that so many unskilled workers need. They will see an increase in poverty and a rise in crime as those who have been left behind by the higher minimum wage find themselves desperate, deserted, and destitute.
Nobel Laureate economist Milton Friedman called minimum wage legislation “the most anti-black law on the statute book.” Economic data demonstrates that blacks are those who suffer most from increases in the minimum wage. For instance, the Monthly Labor Review outlined how black unemployment rose from 10.5 percent in the third-quarter of 1996 to 10.9 percent in the first-quarter of 1997, due to an increase in the federal minimum wage. During the same time, unemployment rose from 16.6 percent to 17 percent for teenagers and from 8.5 percent to 9.1 percent for women who were the primary income earners in their household. Raising the cost of hiring employees forced firms to discriminate against lower skilled and inexperienced workers, putting minorities, teens, and single mothers, most of whom received a substandard education or dropped out of high school, out of work.
The simple law of supply and demand shows that the market will evaluate the factors – for both job seekers and employers – and, with the miracle of the “invisible hand,” will provide a market price for labor. This holds true both for skilled workers, such as an engineer or a plumber, and for unskilled workers. For example, janitors do not receive the minimum wage because companies have to pay more in order to find people willing to do the work. And when the government establishes a price floor for unskilled pleasant labor – the minimum wage – it distorts the natural order of the market. The government’s move over-prices unskilled labor, creating a surplus of workers who want to work but who cannot find a job. Those already in the labor market, before the increase in wage, will now have to compete for fewer jobs with those pulled into the market because of the rise in wages.
This needless intervention into business also distorts the market by reducing economic growth. Slower economic growth means fewer new jobs and smaller returns for pensions, which in turn means that America will fall behind the world in economic strength, stature, and independence. This also means a much dimmer future for our worker’s children.
A high-school understanding of economics would allow the average American to understand how counterproductive a minimum wage is for society. America’s leaders should know basic economics, but, alas, they appear deficient in this regard.
