If I Were a Racist…
And I thus wanted to do whatever I could to harm minorities, the first thing I would do would be to advocate for raising the minimum wage.
Yes, you heard me correctly.
We have an epidemic of teen unemployment today, but it is far, far worse among black teens than it is white. White teen unemployment (this involves teens who want jobs, not all teens) is 20%, an unacceptably high rate. But while Al and Jesse were race-baiting over a jury’s decision in Florida, the black teen unemployment rate climbed to 41.6%. This is an eight-point climb over the same numbers from March of this year; in four months, eight points.
Enter Milton Friedman, whose 100th birthday is today. Friedman explains why a chief culprit in the entire scenario is the existence of minimum wage:
Please watch this video. It explains basic economics in simple terms. Friedman would turn over in his grave if he knew how badly things have gone for today’s youth–but based upon his reasoning, it’s entirely predictable.
Alas for Dr. Friedman, our experience in America doesn’t support his claim that raising the minimum wage stops the creation of entry level jobs.
Look at the facts:
1. Many teens work at fast-food places, most of which pay above minimum wage now.
2. Minimum wage employees mostly are working adults, with families, long in the job market — on their third or fourth job.
3. Every increase in the minimum wage has been followed by an increase in jobs. We might call this the Ford Effect — Henry Ford discovered, when he doubled the wages for his workers on the auto assembly line, that they worked harder, more efficiently, and critically, they spent more money. Hugely important to Ford, they used their extra money to buy cars, the very things they built, which they had not been able to afford before.
Ford called raising wages “The best cost-cutting idea I ever had.”
When I staffed Senate Labor, we asked Dr. Friedman to provide us with studies backing the claims. No one could do it. The studies authorized by the committee in the Reagan administration showed clearly that raising the minimum wage did not frustrate job creation, but instead made for more jobs, at higher wages.
Ed, I appreciate your taking time to respond and regret the fact that I haven’t gotten back to you sooner. I am, of course, going to take issue with a few things you say. I’m sorry, but I believe that Dr. Friedman is correct. First off, teen unemployment is terrible. Black teen unemployment is 41.6% (when numbers aren’t played with by those with an agenda), which is shameful; white teen unemployment is 20% by the same yardstick, ergo, those who want a job but can’t find one or have quit looking. If businesses were not bound by an artificially-inflated wage, there would be jobs for some of these kids, getting them going on a productive life, teaching them about work, etc. Interesting that the progressive Center for American Progress shows a graph demonstrating the sharp increase in unemployment, particularly among young people, which began about 2007.
I find it no coincidence that the “Fair Minimum Wage Act” was signed into law in late May–of 2007. I wouldn’t make the mistake of saying that raising the minimum wage was the only factor, of course, but neither will I make the mistake of saying that “Every increase in the minimum wage has been followed by an increase in jobs.”
Second, I just completely discount your “Ford Effect”, for at least a couple reasons: one, the times are different now, but more importantly (and this is a distinction that liberals never can seem to understand–not that I have any idea whether you are one or not, Ed), there is all the difference in the world between a private entity doing something voluntarily and the government forcing that private entity to do something. Ford willingly raised wages, and it’s not surprising that there was an outpouring of gratitude that, at least at the outset, might have translated into better work; that seems common sense. It’s altogether different, though, from an employer being dragged kicking and screaming into raising wages.
I work for a small business, and the economics are rather simple on our restaurant scale. We pay just above minimum wage to most of our new employees. If minimum wage were to be raised to $9/hour, as this administration proposes, I can tell you what would happen, and it’d be a combination of several things: one, we’d do everything we could to trim hours. Now in fairness, I must say that it’s unlikely that many would lose their jobs, because it takes a certain number of man-hours to keep the ship afloat. But we’d trim hours even more than we do, and we’d certainly, certainly not employ other workers; we’d cut a little (ergo, at least a small rise in unemployment). Second, since all other workers’ salaries would have to be raised (the person making $8.50/hour now, for instance, a dollar above our lowest wage, would likely be raised to something around $10/hour, etc.), the price of our food would have to go up. Isn’t that common sense? Take it all the way down the supply chain: if minimum wage were raised $1.75/hour–which is nearly 25%–then our costs would rise, and that rise would be reflected in the prices of our food. Those price increases would cause some percentage of people to make cheaper choices and stop patronizing our restaurant, which would further hurt our bottom line, and we’d have to factor that into the amount of the price increase.
Of course, there is no minimum wage increase for the unemployed, or for those on fixed incomes, and so as our prices increase, they are less and less likely to choose to eat at our restaurant (or to eat out, period). This harms business, and some businesses (not likely the one for which I am employed, thankfully), which operate with a narrow profit margin to begin with, would find this to be a final straw destroying viability. The unemployed will, in general, fall further and further behind, and be more and more dependent on the government dole. Those over 41% of black teens will still be unemployed and making no strides toward gaining employment; we sure wouldn’t be hiring any extra people!
I can’t, of course, speak to your experience, but I am not persuaded by your reasoning, and I think that the studies done show mixed things, but it doesn’t seem to me that the weight of them–or basic logic, IMHO–would support your premise.
Your analysis misses other possibilities if the minimum wage were raised.
Raising the minimum wage for some companies will just mean lower profits. Ex. assume a large company has a 1,000,000 hours of min. wage work per year, and makes $100,000,000 in profit. Raising the min. wage by $2.00/hour, simply reduces the companies profits to $98,000,000. Now a company *may* try to gain back those profits by increasing prices, but that assumes they previously could had higher profits by increasing prices before the min wage increase (i.e. prices are theoretically set at the point that maximizes profits). Or they could also try to recoup profits by reducing (or not increasing) salaries of higher wage earners (ex. through reducing bonuses etc).
You are correct that raising the min. wage for low profit margin businesses could hurt those businesses (possibly put them out of business). On the other hand, increasing min. wage puts more $ in peoples pockets, which means they may spend more increasing these companies sales. And this increase may also increase inflation as well.
In short, the overall effects of raising the min. wage is very complicated. Which is why you should base your arguments on actual economic data (there is lots of it out there) and not some theory that just happens to align with your personal/political views.
Well, I’d say Milton Friedman is more than a theoretician…
At any rate, of course I’d agree that some people will have more money in their pockets; that’s unarguable, as is your point about inflation. Some will go, though, from having some money in their pockets to having none. Others who could have been hired at a lower wage won’t be. Those who are unemployed will face a larger and larger hurdle as prices increase.
As to companies making lower profits, that’s certainly possible, and they might employ some of the strategies you suggest (lowering bonuses, etc.). Then again, those making gigantic salaries/bonuses are free agents able to take their services to the highest bidder, so many companies would understandably be reluctant to alienate those who have led them (theoretically) to higher profits.
Does make for an interesting discussion, though.