Last Updated:December 18 @ 10:24 am

Sowell: Minimum Wage Madness

By GOPUSA Staff

Political crusades for raising the minimum wage are back again. Advocates of minimum wage laws often give themselves credit for being more "compassionate" towards "the poor." But they seldom bother to check what are the actual consequences of such laws.

One of the simplest and most fundamental economic principles is that people tend to buy more when the price is lower and less when the price is higher. Yet advocates of minimum wage laws seem to think that the government can raise the price of labor without reducing the amount of labor that will be hired.

When you turn from economic principles to hard facts, the case against minimum wage laws is even stronger. Countries with minimum wage laws almost invariably have higher rates of unemployment than countries without minimum wage laws.

Most nations today have minimum wage laws, but they have not always had them. Unemployment rates have been very much lower in places and times when there were no minimum wage laws.

Switzerland is one of the few modern nations without a minimum wage law. In 2003, "The Economist" magazine reported: "Switzerland's unemployment neared a five-year high of 3.9 percent in February." In February of this year, Switzerland's unemployment rate was 3.1 percent. A recent issue of "The Economist" showed Switzerland's unemployment rate as 2.1 percent.

Most Americans today have never seen unemployment rates that low. However, there was a time when there was no federal minimum wage law in the United States. The last time was during the Coolidge administration, when the annual unemployment rate got as low as 1.8 percent. When Hong Kong was a British colony, it had no minimum wage law. In 1991 its unemployment rate was under 2 percent.

As for being "compassionate" toward "the poor," this assumes that there is some enduring class of Americans who are poor in some meaningful sense, and that there is something compassionate about reducing their chances of getting a job.

Most Americans living below the government-set poverty line have a washer and/or a dryer, as well as a computer. More than 80 percent have air conditioning. More than 80 percent also have both a landline and a cell phone. Nearly all have television and a refrigerator. Most Americans living below the official poverty line also own a motor vehicle and have more living space than the average European -- not Europeans in poverty, the average European.

Why then are they called "poor"? Because government bureaucrats create the official definition of poverty, and they do so in ways that provide a political rationale for the welfare state -- and, not incidentally, for the bureaucrats' own jobs.

Most people in the lower income brackets are not an enduring class. Most working people in the bottom 20 percent in income at a given time do not stay there over time. More of them end up in the top 20 percent than remain behind in the bottom 20 percent.

There is nothing mysterious about the fact that most people start off in entry level jobs that pay much less than they will earn after they get some work experience. But, when minimum wage levels are set without regard to their initial productivity, young people are disproportionately unemployed -- priced out of jobs.

In European welfare states where minimum wages, and mandated job benefits to be paid for by employers, are more generous than in the United States, unemployment rates for younger workers are often 20 percent or higher, even when there is no recession.

Unemployed young people lose not only the pay they could have earned but, at least equally important, the work experience that would enable them to earn higher rates of pay later on.

Minorities, like young people, can also be priced out of jobs. In the United States, the last year in which the black unemployment rate was lower than the white unemployment rate -- 1930 -- was also the last year when there was no federal minimum wage law. Inflation in the 1940s raised the pay of even unskilled workers above the minimum wage set in 1938. Economically, it was the same as if there were no minimum wage law by the late 1940s.

In 1948 the unemployment rate of black 16-year-old and 17-year-old males was 9.4 percent. This was a fraction of what it would become in even the most prosperous years from 1958 on, as the minimum wage was raised repeatedly to keep up with inflation.

Some "compassion" for "the poor"!

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Thomas Sowell is a senior fellow at the Hoover Institution, Stanford University, Stanford, CA 94305. His website is www.tsowell.com. To find out more about Thomas Sowell and read features by other Creators Syndicate columnists and cartoonists, visit the Creators Syndicate Web page at www.creators.com.

COPYRIGHT 2013 CREATORS.COM

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9 Comments

  1. inluminatuoComment by inluminatuo
    September 17, 2013 @ 8:12 am

    Minimum wage is just one more way to re-distribute the fruits of the talented from those who earn it into the pockets of those unable or unwilling to compete in an arena of fair play, and place the outcomes of personal lives into the hands of fallible corrupt government men of self-interest. It is the unnatural selection as to who survives within the species of competition. Instead of breeding and empowering our best and brightest they just create more social parasites of entitlement who think all that is required to make their way in the world is to just show up, which in their liberal drugged minds is actually quite an accomplishment, given the amount of unemployment benefits and other scam programs that appeal to their worst tendencies to become slackers. Without government to sustain them, nature would cull them out in a heartbeat. Instead government rewards them and their ranks continue to grow to the ever debilitating effect of their socialism that kills the Capitalist hand that feeds them. Just admit it, minimum wage usually means minimum minds, minimum effort and minimum talent when viewed as a long term lifestyle safety net, rather than a stepping stone to something better.

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    • Scruffy-USN-RetiredComment by kerryp
      September 17, 2013 @ 8:51 am

      This is the kind of thinking of the democrats, encourage a society of beggars and you will have votes for government handouts. At some point they will have cultivated more beggars than workers and the whole system collapses.

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    • empty pocketsComment by empty pockets
      September 18, 2013 @ 7:47 am

      Minimum wage jobs are primarily meant as entry level-as in entry into the labor pool. It’s where people with no established skills or low skills can be productive and gain not only marketable skills but also a record of performance. Those represent the majority of “minimum wage workers”. Though they may be hard and diligent workers they must begin somewhere and prove themselves before moving into higher wages and greater responsibility…at least in a free market. Most of them are also still in school and need income above the support provided at home (or as retirees a supplement to retirement income). Or they have been out of the workforce for some reason and need to reenter. They aren’t jobs meant to be careers. Merely lower rungs on the ladder to better places…if you are capable and determined.

      Those who bemoan the fact that minimum wage isn’t a “living wage” are correct, but wrong to think it should be. It isn’t meant to be a living wage and raising it to a level that would be, would only be a very short term fix. Any gain of wages would be cancelled out by increased tax withholding and more so by the increased costs of labor as it filters through the market. So the “poor” would still be just as poor if not more so and worse off due to far fewer jobs. Labor is the highest cost of doing business. Increase that cost against market forces and the bubble caused will be ugly indeed. For ALL of us.

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  2. sam236Comment by sam236
    September 17, 2013 @ 10:00 am

    If our politicians could ever move beyond sound bites and slogans, we could have a sensible discussion of the minimum wage issue and consider the facts raised in the article above. But doing so seems completely beyond the ability of the politicians. Or perhaps they’re just speaking the language most of their constituents understand–short and simple, no actual thought required. The dumbing down of the country will lead to the end of our country.

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  3. 53shbearnettComment by 53shbearnett
    September 17, 2013 @ 11:18 am

    As Herman Cain so rightly pointed out the other day, a higher minimum wage at McDonald’s means McDonald’s finds a way to make Big Macs with fewer — or no — people! Paying low-skill workers outsize wages reduces incentive to gain skills and move up the ladder.

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  4. BillComment by wild1180
    September 17, 2013 @ 11:22 am

    Being liberal means never having to say you are sorry, never having to face uncomfortable facts, never having to think about the repercussions of your policies that make you feel good.

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  5. bowler1hatComment by bowler1hat
    September 17, 2013 @ 12:17 pm

    I sincerely want you to believe me when I say that I am one of a few who have done well in Calculus and have done poorly in the lesser, but far more important math, algebra and Trig skills. Fortunately, I am NOT in Congress or any State Legislature, but the tragedy of it all is that the rest of those who are math basket cases are!

    I ripped Bush on Fuzzy Math, but that has become the norm in many governing bodies. They quote the accepted talking points of the day and a few crafted alpha-numerical phrases and America a few more buffoons who can’t hold on to other people’s money if it were fish hooks.

    It is high time for the American people to realize that those who vote these people in are giving their children a blank check while knowing there will be nothing there for them when they truly need it!

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  6. blemeComment by bleme
    September 17, 2013 @ 12:55 pm

    Even worse is when a State goes out on it’s own and raises minimum wage like California just did. That makes everything sold in California go up in price. With internet shopping, this is a disaster for California retailers and the people they employ.

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  7. mightyjinComment by mightyjin
    September 17, 2013 @ 1:43 pm

    Well said, Tom! I remember an article from my grad school economics course, called “baseline alchemy”. In it, the author described what you just did. The “sliding scale” of poverty is what government bureaucrats deem it to be! How absurd! It just means that they can manufacture their own cause for relief of poverty, when in fact there is little (comparatively speaking) and proclaim victory in the face of complete failure. The domestic economic policies of the BHO administration are an utter disaster because of their entrenched positions on wealth redistribution, taxing the wealthy, getting millions on the welfare roles, etc.,… I say, just give capitalism a chance! God Bless America.

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