The minimum wage law is a trap and a delusion. It preys on the weakest economic actors in the country. Before the passage of this pernicious law in the 1930s, the unemployment rate among whites and blacks, young and old, was about the same. There were no clear differences in unemployment for any of these categories. Today, the unemployment rate among black teenagers is four times, yes, four times, that of middle-aged white youth.
Why is this?
The law is an unemployment law, not an employment law. It stipulates that anyone with a productivity level lower than the level set by law will be unemployed. If the law requires a wage of $10 per hour, and your productivity is only $7 per hour, then any company foolish enough to hire you will essentially lose $3 every 60 minutes. They either don’t hire you or they go bankrupt if they do that one too many times. Raising the level from $10 to $15 will only mean that those with $13 productivity, who could have worked under a law requiring $10 salaries, will no longer be able to do so.
Thus, the minimum wage law is not a floor that, when raised, increases wages for labor. No, rather it is a high jump bar that the employee must cross to even get a job. The higher it is raised, the harder it is to jump over it and find a job. If it were truly an underlying wage, why not increase it to $100 per hour, or better yet, $1000? Then we would all be rich. Why not cut off all foreign aid to poor countries and instead tell them to pass a minimum wage law and keep raising its level until national poverty is ended?
Bernie Sanders wants to raise the minimum wage to $17 an hour. That’s more than double the current federal level of $7.25. Does he want to increase unemployment among black teenagers from fourfold to fivefold among middle-aged whites? Sextuple? To sevenfold levels? (True confession: I had to look these words up). Presumably not. What then explains his position? Economic illiteracy.
Too often, research in this area focuses on increases in minimum wage levels. Who cares about mere increases? The whole rotten law should be repealed and salt sown where it once stood. Because at every level it makes it impossible for those whose productivity is below the level set by law. Card and Krueger [1] wouldn’t agree. They found that a slight increase in levels in New Jersey did not lead to higher unemployment among the unskilled than in neighboring Pennsylvania, where the mandatory statutory wage was not increased. But their statistics turned out to be unreliable, and in any case we should compare the law with them his absencenot with a slightly higher or lower level.
Fire burns people. It does this at 150 degrees Fahrenheit, but also at 152 degrees. Suppose a chemist cannot see much difference between these two temperatures, and then concludes that there is nothing wrong with burning people. What should we say to him? We must argue that there is something seriously wrong with his analysis. We should respond to the Cards and Kruegers of the world in much the same way.
[1] Well-known proponents of minimum wage legislation include Card and Krueger, 1994, 2000. For criticism, see Block, 2001; Burkhauser, Couch and Wittenburg, David, 1996; Burkhauser and Finnegan, 1989; Gallaway and Adie, 1995; Hamermesh and Welch, 1995; Neumark and Wascher, 2000
Walter E. Block is the Harold E. Wirth Eminent Scholar Endowed Chair and professor of economics at Loyola University New Orleans.