Minimum wage, maximum folly

President Clinton and many members of Congress have proposed raising
the minimum wage from its current $5.15 per hour to $6.15. Most academic
economists who’ve studied the minimum wage conclude that higher minimum
wages cause unemployment, not so much among the general labor force, but
among low-skilled workers, especially teenagers. Differences in
unemployment rates reflect this: the unemployment rate for adults over
25 years is 3.1 percent; for teenagers it’s 14.3 percent.

You say, “Williams, the president and Democrats love America’s
children. If the minimum wage hurt them, why would liberals support such
a monstrosity?” First, you have to recognize the reward and punishment
structure in political life. The fact of business is that no congressman
or senator owes his seat to the teenage vote, but many do owe their
seats to the union vote and other interests that benefit from higher
minimum wages. Thus, in the hurly-burly hardball of political life, you
dump on people who can’t dump back on you.

To understand how people can benefit from the minimum wage, let’s
examine the general principle of Congress setting minimum prices using a
non-labor example. Businessmen and labor unions frequently belly-ache
about foreign manufacturers charging too low a price for a product. They
call on Congress or the White House to bully foreign manufacturers to
raise their produce prices or they lobby Congress to raise tariffs.

Do you think American businessmen and labor unions want foreign goods
to sell at higher prices because they’re concerned about and want to
raise the living standards of foreign producers and their workers? If
you think so, I have a bridge to sell you. Their sole motivation is to
set higher minimum prices on foreign goods so they can get away with
charging higher prices for American-made goods as a means to higher
profits and higher wages.

The identical principle explains the union’s push for higher minimum
wages. If unions can make part of the labor market less competitive
through minimum wages, they can demand higher wages for their members.
Businesses may also benefit from higher minimum wages.

For example, let’s go back several decades and pretend you produced
automatic dishwashing machines. Your salesmen put on a sales pitch, but
restaurant owners say, “Why should we buy your costly machines when we
can hire people to wash dishes for $2.00 per hour? It isn’t worth it.”
You would benefit from Congress raising the minimum wage to say $4.00
per hour. Why? It raises the cost of restaurant owners using people to
wash dishes. Thus, they’d have greater financial incentive to buy
dishwashing machines from you.

Supporters preach that minimum wages don’t cause unemployment for
low-skilled workers. But ask them why they pushed so hard for Congress
to enact the Welfare-to-Work Tax credit and the Work Opportunity Tax
Credit. Both tax credits have the effect of reducing the employer’s wage
cost to low-skilled entry level workers by 35 percent or to $3.33 per
hour.

The real problem for low-skilled workers is not that they’re
underpaid, but that they’re underproductive. The solution is to improve
their skills and education. One of the ways to do this is to have a
climate where youngsters can have early work experiences. The little bit
of money a youngster can earn after school and weekends is nice but not
nearly as beneficial as the lessons learned, such as proper work
attitudes, promptness, and respect for supervisors.

For youngsters living in dysfunctional homes and attending rotten
schools, a job might be their only chance to learn something that will
make them more valuable workers in the future. I’m glad today’s
do-gooders weren’t around in the 1940s when I was a teen.