September 2, 2014

Minimum wage increases harm the most vulnerable

Sheldon Richman
Guest Columnist
Crocodile tears are flowing again for low-income people. In his State of the Union address, President Obama proposed raising the minimum wage from $7.25 to $9 an hour. A debate is shaping up between those who support the proposal and those who favor keeping the wage where it is today. But there are good grounds — for the sake of the poor — to repeal the minimum wage altogether.
Wages are not set by fiat, even in the U.S. economy, which is severely distorted by government privileges. Wages, rather, are determined by supply and demand. If the price of unskilled labor rises, why wouldn’t employers buy less? No employer could long pay a worker more than the value he produced for the firm. That’s why economic theory and empirical observation tell us that an enforced minimum wage destroys jobs, degrades the quality of other jobs, and prevents new jobs from being created.
The victims are the most vulnerable people in society: the unskilled. For the most part, these are young people (many from the middle class) without work experience. Few people over 24 make the minimum wage, and those who do usually move up before long. Young people desperately need that first job to learn skills and work habits, and of course income, but “progressive” politicians, whether they know it or not, favor policies that destroy entry-level jobs. Remember, the minimum-wage law doesn’t create employment; it forbids jobs that pay too little.
Advocates of the minimum wage ought to explain why they believe competition among employers hasn’t already bid up the wages of unskilled workers to reflect their productivity. How can anyone know that a $9 minimum won’t throw people out of work or make low-skilled jobs more onerous? No one can know this because only the market process can generate and disclose such information. Nevertheless, “progressives” are willing to gamble with the lives of people who are vulnerable enough as it is.
Years ago, unskilled youth cleaned windshields and checked oil at gas stations, showed people to their seats in movie theaters, and bagged groceries. Many of those kinds of jobs disappeared as the minimum wage rose. Teenage unemployment, especially among blacks, has been a scandal ever since.
If the advocates of the minimum wage really cared about people with low skills and low incomes, they’d support elimination of the myriad government barriers to entrepreneurship and small-business formation, which keep people down. These include occupational licensing, restrictions on street peddling, and zoning, all of which make it tougher for people living on the edge to start up modest businesses and hire people in a similar predicament.
It’s no coincidence that these government barriers to self-employment exist: Established firms, which are always well-connected to the governing elite, dislike the free-wheeling competition that would grow out of a laissez-faire approach. It threatens their dominance.
The failure to move against these poverty-sustaining interventions indicates either that the self-styled champions of the poor are ignorant of economics or that they are poseurs. Let’s not forget that the biggest boosters of the minimum wage are the leaders of organized labor, whose members’ incomes are far above the minimum. Before we assume the motive is humanitarian, let’s recall that such legislation was first proposed years ago by people who wanted to exclude their competition — particularly blacks and women — from the marketplace.
Economist Russ Roberts points to another bad consequence of the minimum wage: It “encourages exploitation” of workers by creating a “reserve army of the unemployed,” since a legislated minimum creates a labor surplus. Roberts writes,
Before the minimum wage, a cruel, selfish employer might have had to mentor his employees or train them or be nice to them despite his nature. Now he won’t have to. He can still get workers to work for him. Even more cruelly, the minimum wage encourages workers to exploit themselves. They work harder and put up with more abuse from the boss because the minimum wage reduces the alternatives that are available.
Is this how unskilled workers should be treated? How long will so-called progressives get away with pretending they care about the poor when they continue to support measures that encourage their exploitation and continued poverty?
Sheldon Richman is vice president and editor at The Future of Freedom Foundation (LINK) in Fairfax, Va.

Comments

  1. I am disappointed and sad that Gardner News would select to publish Mr. Richman’s opinion. Our town has close to one third of our public school students on free or reduced lunch programs. Each of those families are radically impacted by the minimum wage. That increase means the being able to buy shoes, a winter coat, medicine, diapers or school supplies. I hope Gardner News will seek out and publish the opinions of those families who might feel differently than Mr. Richman.

  2. Judith Rogers says:

    I would looooove to have some of these dingbats who write about minimum wage actually live on minimum wage. All those living on minimum wage will continue to need social services paid by citizens across the U.S. I continue to believe the only way out of poverty or never being in it is thru EDUCATION and yet you still see citizens and politicians not really wanting to help the poor get an education. Here is an article from the Business Journal just today about how poor kids would be adversely affected in getting an education. I think this is just one more back door way of not helping those who so desperately need it and in reality not helping the citizens themselves because if they get our youth educated, then chances are higher that they will not need social services and thereby reducing costs to citizens. Poor people need help and my belief is to help educate them and then they will be able to stand on their own two feet and not be in a position of ever working for minimum wage and having to create social costs. There is no way these poor families would be in a position to pay 10 to 15% of the family income, in my opinion, to enable their kids to go to college and I come to the conclusion there are people out there who really don’t care if these poor youth get the education they so sorely need.

    *****************************************************************

    ‘Mandated contribution’ hits poor college students hard

    Boston College requires its students to pay $2,500 a year toward their tuition.

    Staff Kansas City Business Journal

    Some lower-income students with outside scholarships are struggling to meet policies set by some wealthy colleges that require them to pay a certain percentage of their tuition on their own without help from scholarships, Bloomberg reports.

    Boston College has a mandated student contribution that forces students to pay $2,500 a year toward their tuition and doesn’t allow the money to come from outside scholarships. This mandate, the report says, is leaving scholarship programs to fund colleges’ bottom line, instead of helping the students. For low-income students, the report said, the mandated contribution could total as much as 10 to 15 percent of a family’s annual income, the report says.

    The National Scholarship Providers Association is set to release a report by April showing that college policies that cut or rescind funding because of outside scholarships take “away a reward that the student earned through hard work and concentrated effort,” the report says.

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