The celebrated economist Thomas Sowell, who happens to be African American, once tried to convince members of the Congressional Black Caucus of the economic and societal foolishness of supporting an increase in the minimum wage. But with political agendas being what they were, he swayed no one by arguing that an increase in the minimum wage (even the mere existence of it) hurts the very people it’s purportedly designed to help.
“What is surprising is that, despite an accumulation of evidence over the years of the devastating effects of minimum-wage laws on black teenage unemployment rates, members of the Congressional Black Caucus continue to vote for such laws,” Sowell wrote said in a 2016 column explaining the counterproductive results of government interference in the wage market.
The same political calculation would stymie any attempt Sowell might make to convince Governor Tom Wolf that raising Pennsylvania’s minimum wage over the federal minimum of $7.25 an hour would likewise hurt many in the class of people he’s professing to help. The governor renewed his call this week for an increase in the minimum -- eventually to $15 an hour, the arbitrary number designated as the “living wage.”
“There are tradeoffs to everything,” said PMA President & CEO David N. Taylor. “As ever, increases in the government-mandated wage rate don’t actually increase the amount of money employers have to pay people. Inevitably, an increase in the artificial wage mandate will reduce hours for some workers, cause other jobs to be eliminated or not created, and otherwise reduce growth while providing no gain in productivity. At a time when wages are naturally rising due to low unemployment and strong economic growth, Gov. Wolf’s proposal makes even less sense.”
What Sowell has known all along, and what was recently supported by the results of research from the nonpartisan Congressional Budget Office last July, is that the minimum wage prices many young and unskilled workers out of the job market.
The CBO concluded that increasing the federal minimum wage would have two principal effects on low-wage workers:
“For most low-wage workers, earnings and family income would increase, which would lift some families out of poverty. But other low-wage workers would become jobless, and their family income would fall—in some cases, below the poverty threshold.”
No sound economic argument can be made for government setting wages in a free market economy. That’s why some of the very countries whose political and economic structures the progressives love to venerate have no minimum wage: Iceland, Norway, Sweden, Finland, Denmark, Austria, Germany, Italy, Switzerland.
Minimum wages, in fact, were originally devised to keep the certain classes of people out of the workforce:
In 1925, British Columbia approved a minimum-wage law to price Japanese immigrants out of jobs in the lumbering industry;
A Harvard professor remarked that Australia’s minimum wage law established in 1907 was a means to “protect the white Australian’s standard of living from the invidious competition of the colored races, particularly of the Chinese,” who were willing to work for less;
And, some supporters of the first federal minimum wage law in the United States, the Davis-Bacon Act of 1931, cited the need for it to lock-out construction companies from the South, using non-union black labor, to underbid construction jobs in the North.
Today, the minimum wage, we are told, is all about good intentions, but good intentions don’t necessarily deliver good results. By intruding in the wage market, government places an artificial value on goods and services, and a lot of undesirable things happen.
“There exists a vast hierarchy of values assigned to each and every good and service in the marketplace, and everybody gets to choose for himself what value he attaches to each product,”
wrote National Review’s Kevin Williamson on the minimum wage. “He doesn’t get to choose for anybody else, but the instrument of voluntary exchange allows people to negotiate mutually agreeable trades — in a free market, a trade that is not mutually agreeable simply does not happen.”
The minimum wage amounts to little more than a tax on businesses employing lower income workers, and nearly all economists agree that when you tax something you get less of it – jobs in this case.
“What you can do is interfere with exchange,” Williamson wrote. “You can price out of the market entirely people whose labor is not actually worth $15 an hour to any employer, or you can force employers to try to offload those extra labor costs onto other employees, suppliers, or customers. You can encourage automation and other substitutions of capital for labor. And you can cause all sorts of chaos.”
Recent figures from the Bureau of Labor Statistics show that the market, unencumbered by excessive taxes and regulation, is the best, and should be the only, determiner of wage rates. During the first 11 quarters of the Trump presidency, wages for the bottom ten percent of earners rose an average of 5.0 percent compared to 2.4 percent during Obama’s second term.
Less educated workers are among the biggest winners. Wages have risen at a 6.1 percent annual clip for those over 25 without a high school degree and 3.9 percent of those with some college. The increases were over three times faster than during Obama’s second term.
Moreover, rising wages have lifted millions out of poverty and off welfare, and the poverty rates for African Americans at 20.8 percent and 17.6 percent for Hispanics are the lowest on record.
Governor Wolf’s proposal for a $15 minimum wage will hurt the very people he’s intending to help. There is a workforce crisis in Pennsylvania; there are more jobs available than people who are able, available, and qualified to fill them. At any moment, there are more than 6,000 manufacturing jobs that remain vacant on shop floors across our commonwealth. A minimum wage increase would make this problem worse because the jobs that would be eliminated are often the entry-point into the workforce. Further delaying this entry-point by artificially inflating training wages will exacerbate this problem. According to the Bureau of Labor statistics, in 1978 the percentage of the workforce ages 16-24 was 24.5 percent. In 2018, that same age demographic only accounted for an estimated 12.5 percent. The reasons for this are complex, but increases in government mandated wages and bureaucratic red tape account for much of change.
Manufacturers often need a step or several steps beyond entry-level, but with increasing barriers to the workforce, those skilled workers have become difficult to find. Artificially inflating government mandated wages is not the answer our economy needs.