Obama’s Misguided Minimum Wage Plan

Writing at The Wall Street Journal, Jason Riley argues that there’s “something sadly ironic” about President Barack Obama’s State of the Union proposal for increasing the federal minimum wage, considering which groups are likely to suffer the most under such a change. Riley writes:

Minimum-wage laws date to the 1930s, and supporters in Congress at the time were explicit about using them to stop blacks from displacing whites in the labor force by working for less money. Milton Friedman regarded the minimum wage as "one of the most, if not the most, anti-black laws on the statute books."

When you artificially increase the cost of labor, you wind up with surplus labor, which takes the form of unemployment. Younger and less-experienced workers—a disproportionate number of whom are black—are more likely to be priced out of the labor force when the cost of hiring someone goes up. Prior to the passage of minimum-wage laws—and in an era of open and rampant racial discrimination in the U.S.—the unemployment rate for black men was much lower than it is now and similar to that of whites in the same age group.

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  • sarcasmic||

    So some greedy employers will have to give up some of their obscene profits to pay their poor workers something closer to what they are actually worth. What's the big deal?

  • Whiterun Guard||

    Seriously. A living wage is a right, and it's high time those corporate slavers learned that lesson.

  • Tim||

    Of course, members of congress are exempt from this, like with all federal regs.

  • Question of Auban||

    Volunteering should be illegal. How dare those volunteers offer their services for zero an hour – that is less than minimum wage!

  • DrAwkward||

    Careful, these same geniuses wanted to outlaw unpaid internships.

    Any voluntary transaction between individuals is suspect until they can justify it to a distant 3rd party, who knows nothing about the aims of either individual. Everyone knows that.

  • Calidissident||

    This is almost word for word what a friend of one of my FB friends posted yesterday

  • JD the elder||

    Well, of course. When a business earns money, it either goes to the wages of hard-working employees, or it goes to the enormous pile of cash the owner rolls around in as he cackles with glee. There are no other possibilities, don't you know?

  • Shirley Knott||

    Let's balance all this by having a 'minimum profit law' for small business.
    After all, why should anyone start up a business, invest their own sweat equity, if they're not going to recoup minimum wage for every moment spent on it, from day one?
    No one should have to work for less than minimum wage, even if they are the business owner!
    I'd expect the government to fund this, of course. It's only fair.

    /snark

  • sarcasmic||

    You've got it backwards. Profit is theft. Therefore there should be a maximum profit law for businesses.

  • Bill||

    No. You are both wrong. Profit can be too little or too much. And this varies with how big the company is and varies with the type of company it is. And only TopMen know when the profits are just right. So we need several new agencies to get this all straightened out. Probably four will work for now but we can always add more later.

    One agency will decide if profits are too low, one if they are too high, one will decide what size a business is, and one to rank the industry according to its level of greeniness and its level of social responsibility.

    Of course, size is a relative matter, so some businesses that are deemed "green" or "important" or socially responsible will have different scales to when they are too big or when their profit is too small or large. This seems like it would work much better and put some much needed ORDER into the chaos we currently have.

  • ||

    TOP men

  • Don Mynack||

    I admit I am intrigued by Ron Unz's proposals here:

    http://www.ronunz.org/2013/02/.....ve-action/

    and here:

    http://www.theamericanconserva.....inglepage/

    "...immigration and the minimum wage are deeply intertwined policy issues, and should naturally be addressed together. Raising our minimum wage to $12 per hour as part of the proposed amnesty legislation would probably do more to solve future immigration problems than would any sort of electronic fence or national ID card."

    I would couple it with a large corporate tax reduction, say down to 15% as the top rate.

    Would the long term effects be less employment?

  • NeonCat||

    Yeah, no way would employers pay illegals cash under the table. No way at all.

    And why shouldn't I pay a lot more so companies can pay somebody $12 an hour? I make like $16 an hour or so, so I can definitely afford it.

  • Redmanfms||

    Yeah, no way would employers pay illegals cash under the table. No way at all.

    Well, it's more accurate to say they hire them as subcontractors and pay them on a daily contingency. Since these transactions make up the majority of "illegal" employment I simply fail to see how raising the minimum wage is going to discourage illegal immigration.

    If anything increasing the minimum wage would further incentivize "illegal" subcontracting.

  • R C Dean||

    Raising our minimum wage to $12 per hour as part of the proposed amnesty legislation would probably do more to solve future immigration problems

    I doubt it. On the one hand, it will definitely dry up the above-ground market for low-skill labor, which is the main market for illegals.

    On the other, it will incentivize the underground market for low-skill laber and give illegals an edge in that market, as someone who is breaking the law to pay under minimum wage will want to pay it to somebody who can't complain without getting deported.

  • T o n y||

    It doesn't really fly when you only care about racism when it's to score a few cheap points in favor of your political argument, which is a prevalent tactic among the sometimes-bleeding-hearts here and in GlennBeckistan. The motivations behind the Davis-Bacon Act are irrelevant to whether minimum wage laws are useful right now. And while there is disagreement among economists, the consensus of serious studies does not show a negative association between minimum wage laws and unemployment rates.

  • The Late P Brooks||

    Come on, Tony; you're barely trying.

  • The Late P Brooks||

    Younger and less-experienced workers—a disproportionate number of whom are black—are more likely to be priced out of the labor force when the cost of hiring someone goes up.

    This is why we need to keep them in "college" (at government expense) until they're well into their late twenties.

    That will somehow or other eliminate the problem, and make them all highly paid executives.

  • T o n y||

    It is an empirical fact that the more education you have the more employable you are. Higher education should be encouraged, and minimum wage laws are theoretically a way to do that.

  • ||

    Other than the fact the 1 in 2 new college graduates are jobless or underemployed.

  • R C Dean||

    It is an empirical fact that the more education you have the more employable you are.

    Actually, having an advanced degree makes you less employable for jobs you are are overqualified for. Like minimum wage jobs.

    You can't increase the value created by a worker by giving him a degree. You can't increase the value created by a job by raising the wages.

  • Rasilio||

    No, it HAS been a general trend that the more education you have the more employable you are, however there is nothing inherent in this situation it is just that in the recent past corporations have preferred to use a college degree as a proxy for actually measured abilities however this preference could change at a moments notice for any number of reasons and even where it continues to exist it has never been an absolute truth as the question of WHAT education you recieved (not merely the quantity) has always been important and there has also always been the issue of becoming over educated and pricing yourself out of the market as a result

  • Mickey Rat||

    It is only an empirical fact if your education has imparted to you skills that both create value and are relatively scarce. If your education is in a BS field or an oversaturated one, not so much.

  • Don Mynack||

    In the Amcon piece, Unz addressed the min wage increase as more of stimulus plan than anything else. It gets more money directly to the people, since higher corp profits aren't leading to higher wages or employment - mostly due to uncertainty about taxes. That's why I would give the market certainty with a 15% top rate on corp taxes, which Unz does not address.

    He also argued that most min wage jobs are service jobs, not manufacturing that are easily moved to lower wage areas. This might spur innovation in other areas, like robotics, etc.

  • R C Dean||

    It gets more money directly to the people,

    To people who have jobs, sure.

    To people who don't, especially those who don't because they are now priced out of the job market, not so much.

  • BarryD||

    There's something even more ironic.

    The only reason anyone even gives a shit about what the Federal Minimum Wage is, is that unemployment, underemployment, and labor force participation rates are atrocious under Obama.

    When unemployment is low, NOBODY works for the Minimum Wage, other than people who work primarily for tips, and who with the right gig can earn more than many salaried people with "real jobs".

  • sarcasmic||

    I actually took a pay cut when I quit my position as a waiter to take my first software engineering job. Of course I now had a predictable paycheck, health insurance, weekends off, and a future, so it was worth it.

  • ||

    You took cut in your paycheck, but from the sound of it, your total compensation went up.

  • BarryD||

    Yeah, but a lot of people make less than software engineers.

  • ||

    The problem is minimum wage just increased the price of goods and nullifies any benefit of increased wages very quickly. Before the minimum wage law was passed in the FRLA in 1938, CPI grew at a negative rate as often as it increased (I think they only began measuring that in 1911). Since 1938 there hasn't been a single year where the growth rate of CPI hasn't increased.

  • A Mathematician||

    They are talking about the Davis-Bacon Act of 1931. That's where all the racism was happening.

    The actual federal minimum wage law that applies to everyone is the FLSA. It wasn't intentionally racist.

    Both do economically the same thing, so they both had the same results.

  • 21044||

    Governments can define the minimum wage any way they wish. The Real minimum wage is whatever McDonalds has to pay to keep workers at whatever McDonalds determines is an acceptable employee turnover rate.

    Might be $7.90 in Hays, KS, but $17.00 per hour in Manhattan, NYC.

  • sarcasmic||

    +1

  • salang||

    I'm not an economist so maybe I'm ignorant about this, but I thought a lot of new empirical studies have shown the negative employment affects of minimum wage to be virtually nothing in most instances. I think the reasoning given for this was that min. wage is already generally set close to the equilibrium point in demand for labor. So the minimum wage would only have a big impact on unemployment if it were way above the "real" minimum wage.

    Which makes me think, since a lot of southern states don't have state min. wages, are their economies that much lower priced than the national average that the federal min. wage could be attributed their high unemployment? Does anyone know of any studies looking at this?

    That being said, the race thing seems a bit of a stretch. Home life, culture, and personal resolve all play a pretty big role as predictors of success. I'm not so sure low unemployment in one broadly defined group can just be deemed the result of min. wage.

  • Emily Oliver||

    Unfortunately the minimum wage in the US is still a huge problem. We're facing an economic crisis and the situation is definitely not an easy one for anybody. In fact the Orlando Bisegna Index which measures the intensity of the economic crisis in various countries, has placed us tenth on the list among the countries hardest hit by the economic crisis at 13.19 points for the month of February.

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