Minimum Wage Hurts Jobless by Making Work Illegal

Combine bipartisan "compassion" with bipartisan "bad economics" and the result is well-intentioned public policy which produces undesired results. Such is the case with minimum wage legislation capturing attention in Lansing.

The federal minimum wage for most workers was raised last year by act of Congress. In Lansing, the question concerns those workers for whom only the state’s minimum applies—those who work for companies that do not engage in interstate commerce and have gross receipts under $500,000 a year. Some legislators want the state’s minimum to rise from the current $3.35 an hour to $5.15 by September 1998.

Some will say that pointing out the conceptual flaws in the minimum wage now is like closing the barn door after the horses have gone. But it’s never too late to highlight principles of sound economics. This issue, almost perennial, will emerge again and again as it has since the first minimum wage law was passed more than 60 years ago.

It remains an inescapable fact of economic life that no legislature can make a person worth a certain amount simply by making it illegal for employers to pay him any less. Furthermore, the demand for labor depends in large part on the cost of labor. Raise the cost and you cut the demand.

Legislators ought to ask themselves this question: Is it conceivable that someone out there in the labor market, because of age, handicap or lack of experience, may not be worth as much as $5.15 per hour? Or this question: Is there no job, no task that could be done, no need which could be fulfilled, that is worth, say, only $3.35 per hour?

The obvious answer to either question is yes, which raises yet another valid query: What will happen to those people whose productive output is worth less than the minimum decreed by Lansing? Some might think those workers will simply get a raise, but real-world economics says that many of them will be put out of their jobs. Others who might be hired at $3.35 will not be hired at all if the law says they have to be paid $5.15.

Legislators implicitly acknowledge the point by expressing the desire to be "reasonable" in raising the minimum. If edicts from the legislature can relieve poverty and the minimum wage idea really makes sense, then why not decree the minimum to be $7 or $10 per hour? Why not be really generous and tell everyone that if they can’t find someone willing to pay them $15 per hour, they are not allowed to work?

Minimum wage fixing must inevitably price some people out of the labor market; and, ironically, they tend to be among the very people the law is supposed to help. Youth and minority unemployment in the inner cities is still high nationwide at least in some part because the law makes it a criminal offense for these young people to be employed at their true market value.

Denying so many young or unskilled people low-paying but entry-level jobs prevents them from starting up the economic ladder. Instead of picking up experience, learning a trade and gathering references and good work habits, they’re out in the streets or on drugs—victims of somebody else’s good intentions and lousy economics.

One big city mayor who opposed an earlier hike in the minimum put it well when he said, "I’d rather be criticized for supporting a wage of $2.50 and save the $15,000 it costs to keep someone incarcerated. Those (in government) who oppose that all have jobs. None of them are out beating the pavement trying to find work."

That’s why groups as varied as the National Association of Black Mayors, the Cuban-American Association and The Heritage Foundation have actually supported a lower minimum, at least for young people. The New York Times even editorialized once (in 1988) that the "right" minimum wage for the economy was "$0.00." Fixing it anywhere by law, the editors concluded, has proven to be politically popular but economically unsound.

Henry David Thoreau once said, "If I knew for certain that a man was coming to my home to do me good, I’d run for my life." Hiking the minimum wage sounds like just what he had in mind.