Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, January 19, 1995 TAG: 9501190072
SECTION: EDITORIAL PAGE: A-15 EDITION: METRO
SOURCE: JAMES A. DORN
DATELINE: LENGTH: Medium
Minimum wages reduce job opportunities for low-skilled workers, increase unemployment and expand the welfare state. Preventing low-skilled workers from taking jobs at less than the legal minimum, and preventing employers from hiring at less than the minimum, interferes with individual freedom and produces poverty, not wealth.
A minimum-wage law does nothing to alleviate the causes of poverty: It does not increase productivity; it does not encourage saving and investment; and it does not change habits or attitudes that hinder employment. Legally mandated wage increases may increase the number of people who are willing to work, but there will be no corresponding increase in the number of jobs. (The Congressional Budget Office has predicted that increasing the minimum wage to $5.05 could destroy as many as 500,000 jobs.)
There is no free lunch; individuals can't be paid what they haven't first produced. Workers who are producing less than the minimum (say, $4.50 per hour) will be fired; workers who cannot produce even the minimum will not be hired; and workers who produce the minimum will retain their jobs in the short run but stand to lose them in the long run as employers conserve on higher-priced labor.
Low-income ethnic minorities will be hurt disproportionately because they make up a large segment of the low-skilled labor force, are at a disadvantage in terms of education and work experience, and suffer from discrimination. After World War II, when the minimum wage was 40 cents an hour, there was no significant difference between black and white teen-age male unemployment. By 1992, with a minimum wage of $4.25 an hour, the unemployment rate for black teen-age males had risen to more than twice that for white teen-age males (42 percent versus 18.4 percent).
The negative effect of minimum wages on teen-age employment, especially for nonwhite males, doesn't tell the whole story. What the official statistics don't show are the factories that are never built or expanded, the jobs that are never created, the incomes that are never earned, and the dreams that are never realized.
A minimum-wage law politicizes the market for unskilled labor by making the government a party to every contract. Although the law is supposed to help the poor, the primary beneficiaries of the minimum wage have been labor unions and their agent, the Department of Labor. It is not difficult to see why: Minimum wages increase the demand for union labor by inflating the cost of low-skilled, nonunion labor; and minimum wages benefit the Labor Department by creating the need for enforcement mechanisms and for government-supported job programs.
If Americans wish to help the poor, the minimum wage is a poor way to do it. Limiting job opportunities and limiting competition from low-wage firms may be suitable means for creating clients for the welfare state, but they are not suitable for creating an environment in which the poor can help themselves out of poverty.
The issue is not whether minimum wages help the poor; they don't. The issue is whether we want to cultivate free markets and create wealth or cultivate big government and redistribute wealth. The minimum wage is a case of government failure, not market failure. The government (responding to organized labor), not the market, has prevented individuals from entering the labor market, from developing their skills and from sharing in the American dream.
Millions of individuals have lifted themselves out of poverty by sacrifice and hard work when they have been free to participate in economic life. Very few, however, have done so when economic life has been controlled by the state. It is time to recognize that the surest path to prosperity is by way of open markets and freely determined wages and prices, not by way of government edicts.
Instead of raising the minimum wage, the Clinton administration should join with the new congressional leadership to create opportunities for the poor by expanding markets and reinvigorating civil society. Congress ought to abolish the minimum-wage law, reform labor law to make markets more competitive, and reduce the heavy tax and regulatory burdens on economic activity. Those steps would help expand the economy, reduce unemployment and alleviate poverty. A higher minimum wage will not.
James A. Dorn is vice president for academic affairs at the Cato Institute in Washington, D.C.
by CNB