http://online.wsj.com/article/SB10001424052970203440104574402820278669840.

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REVIEW & OUTLOOK

October 3, 2009

The Young and the Jobless

The minimum wage hike has driven the wages of teen employees down to $0.00.
Yesterday's September labor market report was lousy by any measure, with 263,000 lost jobs and the jobless rate climbing to 9.8%. But for one group of Americans it was especially awful: the least skilled, especially young workers. Washington will deny the reality, and the media won't make the connection, but one reason for these job losses is the rising minimum wage. Earlier this year, economist David Neumark of the University of California, Irvine, wrote on these pages that the 70-cent-an-hour increase in the minimum wage would cost some 300,000 jobs. Sure enough, the mandated increase to $7.25 took effect in July, and right on cue the August and September jobless numbers confirm the rapid disappearance of jobs for teenagers.

The September teen unemployment rate hit 25.9%, the highest rate since World War II and up from 23.8% in July. Some 330,000 teen jobs have vanished in two months. Hardest hit of all: black male teens, whose unemployment rate shot up to a catastrophic 50.4%. It was merely a terrible 39.2% in July. The biggest explanation is of course the bad economy. But it's precisely when the economy is down and businesses are slashing costs that raising the minimum wage is so destructive to job creation. Congress began raising the minimum wage from $5.15 an hour in July 2007, and there are now 691,000 fewer teens working. As the minimum wage has risen, the gap between the overall unemployment rate and the teen rate has widened, as it did again last month. (See nearby chart.) The current Congress has spent billions of dollars including $1.5 billion in the stimulus billon summer youth employment programs and job training. Yet the jobless numbers suggest that the minimum wage destroyed far more jobs than the government programs helped to create. Congress and the Obama Administration simply ignore the economic consensus that has long linked higher minimum wages with higher unemployment. Two years ago Mr. Neumark and William Wascher, a Federal

Reserve economist, reviewed more than 100 academic studies on the impact of the minimum wage. They found "overwhelming" evidence that the least skilled and the young suffer a loss of employment when the minimum wage is increased. Whatever happened to President Obama's pledge to follow the science? Democrats prefer to cite a few outlier studies known to be methodologically flawed. State lawmakers are also at fault. At least 10 states have raised their minimum wages above the federal level in the last decade, largely in response to union lobbying and in the name of helping the working poor. Four states with among the highest wage rates are California, Massachusetts, Michigan and New York. Studies have shown in each case that their wage policies killed jobs for teens. The Massachusetts teen employment rate sank by one-third when the minimum wage rose by 88% between 1995 and 2008. According to new numbers from the Labor Department, in 2008 only 1.1% of Americans who work 40 hours a week or more even earned the minimum wage. In other words, 98.9% of 40-hour-a-week workers earn more than the minimum. The data also show that teenagers are five times more likely to earn the minimum wage than adults. Minimum wage jobs are nearly all first-time or part-time jobs, and an estimated two of every three minimum wage workers get a pay raise within a year on the job.
Associated Press

Study after study reveals that there are long-term career benefits to working as a teenager and that these benefits go well beyond the pay that these youths receive. A study by researchers at Stanford found that those who do not work as teenagers have lower long-term wages and employability even after 10 years. A high-wage society can only come by making workers more productive, and by destroying starter jobs the minimum wage may reduce long-term earnings. Another recent study across 17 OECD nations, also by Messrs. Neumark and Wascher, found a highly negative association between higher minimum wages and youth employment rates. But it also concluded that having a starter wage, well below the minimum, counteracts much of this negative jobs impact. If Congress won't suspend its recent minimum wage hike, it should at least create a teenage wage of $4 or $5 an hour to help put hundreds of thousands of teens back to work. White House chief economic adviser Larry Summers has endorsed this in the past. Without this change, expect the teen unemployment to remain very high for a long time. The wonder of it all is that liberals still call "progressive" a policy that has driven the wages of hundreds of thousands of the lowest skilled workers down to $0.00.

http://www.telegraph.co.uk/finance/jobs/8802890/Minimum-wage-harming-job-opportunities-for-young.html

Minimum wage harming job opportunities for young

The minimum wage may be pricing young people out of work because employers are finding it too expensive to give them their first job, Government pay advisers have said.
By Richard Tyler, and James Kirkup
9:58PM BST 02 Oct 2011

Firms may be reluctant to create jobs by recruiting inexperienced staff because they are put off by the increased wage bill, the Low Pay Commission has suggested. The Commissions intervention comes amid calls from businesses for minsters to freeze or even cut the rate to enable more young people to find work. Conservative ministers meeting at the partys conference are to promise a raft of measures to boost the stalling UK economy. The claims will add to pressure on the Government to go further. New rates for the minimum wage took effect on Saturday. For 18-20 year olds, the minimum wage is now 4.98, up from 4.92. For 16-17 year olds, the new rate is 3.68, up from 3.64. Tim Butcher, the commissions chief economist told the Daily Telegraph that the body is launching a new investigation into the role the minimum wage has played in Britains growing youth unemployment problem. Official figures last month showed that almost 1 million of the 2.5 million people officially counted as unemployed in Britain are aged between 16 and 24. Almost 220,000 have been out of work for more than a year and some economists fear a "lost generation" of young people who never learn the habits of work and face a lifelong struggle ever to find employment. In its official advice to the Government on this years pay rates, the commission raised concerns about younger workers, the first such warning since the introduction of the legal minimum rate in 1999. "Recent research has found evidence that in difficult economic circumstances the level of the minimum wage may have had an impact on the employment of young people," the commission told ministers. Mr Butcher said some youth unemployment was caused by the economic slowdown hurting businesses, while some of it was specifically due to a "minimum wage effect". He said: "We dont know what the minimum wage effect is in isolation from the recession effect. We do know recessions affect young people as employers operate first-in, first-out and look for people with experience." The commission has now commissioned research to examine the link between the minimum wage rate and youth unemployment. Mr Butcher said that ministers had encouraged the commission to explore the issue before making its recommendations for next years minimum wage rates. The commissions move is will put the minimum wage on the agenda as ministers search for ways to help companies prosper. David Cameron yesterday said that the issue of boosting economic growth is the centrepiece of this weeks Tory conference in Manchester. "We are firing up the engines of the British economy," the Prime Minister said. "There is a step change taking place right now. This Government is not just sitting back." Mr Cameron said ministers want to do "all the things to make it easier for businesses to start up, for businesses to grow, for business to employ people, to expand and to invest." The British Chambers of Commerce said that the minimum wage should be part of the effort to reinvigorate the economy.

Adam Marshall, Director of Policy at the BCC said that there should be a freeze in the minimum wage for younger workers, followed by a consultation with employers about a gradual reduction in the rate. "The concern is that the current rate is discouraging some employers from taking on young people and giving them a chance to get into the workplace," he said. "Some companies are finding the rate is a real problem." Under this years rates, workers over 21 must legally be paid at least 6.08 an hour, up from 5.93. That is a 2.5 per cent rise. By contrast, this years rise in youth rates is 1 per cent, reflecting the commissions concerns about youth unemployment. Both the adult and youth rates are being cut in real terms, because inflation is running above 4 per cent. Mr Butcher said that the commission is still considering its recommendations to ministers for the minimum wage for next year. It was possible that the body could recommend an above-inflation increase in the youth rate, to help it "catch up" with the adult rate, he said. Roger Pedder, chairman of the Unquoted Companies Group, whose members employ more than 85,000 people, warned against any such increase. He said: "The Low Pay Commission has accepted our argument that unskilled workers will lose their jobs if the minimum wage is increased. A faster increase in the minimum wage than average earnings means greater difficulty for the young or unskilled to find work as they become relatively less attractive to employers."

sdhobbs 10/08/2011 11:29 PM

Maybe the critics should remember that actually the cost of living for a youngester is actually no less... unless mummy and daddy support them... in fact when you have to pay for steeper... near illegal insurance rates on vehicles, driving lessons aren't cheap prior to that... etc etc.... many of them are stuffed before they even get started... yet they are the ones that these people ultimately want to be able to drive to work and do their bidding like slaves from whichever near hovel they can possibly afford to live in... Oh then there is the question as to wether the DSA aren't actually biasing results towards those that have an official driving instructor number, which not every one can afford (to be honest), rather than treating them fairly and unbiasedly on their ability to actually drive the vehicle as originally intended... still, I suppose, it creates a lot of very overpriced jobs teaching other peoples kids to drive, a job that normally most parents that can drive can manage to do... employing otherwise useless members of the society because their only actual qualifications are that they can drive a car and talk, a job most of us can equally

http://www.cato.org/pubs/pas/pa106.html Cato Policy Analysis No. 106 May 23, 1988

The Minimum Wage: Washingtons Perennial Myth

by Matthew B. Kibbe Matthew B. Kibbe is a graduate student of economics and a fellow at the Center for the Study of Market Processes, George Mason University.

Executive Summary Thanks to the political clout of organized labor, a number of Washington's lawmakers have once again proposed to substantially [1] raise the minimum wage employers may pay workers. Proposals from Sen. Edward Kennedy (D-Mass.) and Rep. Augustus Hawkins (D-Calif.) would raise the present minimum wage, $3.35, by nearly 40 percent, to $4.65, by 1990. An amendment to the House version of the bill, sponsored by Rep. Carl Perkins (D- Ky.), is even more generous; it would raise the minimum wage to $5.05 by 1992. Members of Congress who support an increase in the minimum wage have all but monopolized the ethical high ground, using an appeal to simple economic justice as the single important justification for their position. The proponents argue for a "fair" minimum wage, as though government could simply legislate wealth into existence. Kennedy finds it "unacceptable" that the present [2] minimum wage "does not permit full-time workers to provide the bare necessities for their families." In reality, full-time employees make up only a small percentage of the total number of people earning the minimum wage. The proponents' use of such straw men not only confuses the issue but also suggests that there are other, less sincere motivations for supporting an increase in the minimum wage. Minimum-wage legislation is and always has been the result of special-interest politics. Behind the rhetoric of economic justice and fairness lie purely self-serving political considerations. A particularly glib admission of this fact was recently made by a Democratic House aide, who claimed during a congressional battle over increases in the minimum wage that Democratic proponents would "throw numbers out till nobody can have faith in the numbers, and then political considerations will win. That's how we do it every [3] time." The simple truth about the issue is that any minimum-wage rate that is forced onto the market will have only negative effects on the distribution of economic justice. Minimum-wage legislation, by its very nature, benefits some at the expense of the least experienced, least productive, and poorest workers. The Determination of Wages in a Market Economy The supply of and demand for particular skills determine the market price of an individual's labor--that is, his wage. Employers attempt to purchase the specific skills they need at the lowest available price, while individuals selling their labor attempt to find the highest-bidding employer. Every market price, including a wage, is simply the outward expression of what employers perceive to be consumers' preferences. If consumers do not value a particular good or service offered on the market, labor, as well as the other factors involved in producing the good, will be worth little. Thus, it is the individual--the sovereign consumer--who has the final say in determining wages. Aside from a shift in consumers' preferences, there is only one noncoercive method through which real wages can rise: workers must become more productive. The most obvious way for workers to enhance their productivity is to increase or improve their skills through education, experience, and effort. Wage rates can also be improved if employers increase their investment in future production. Increased capital investment renders labor more productive by providing workers with better tools. A simple example of this principle is the case of two equally productive workers assigned to clear a wooded lot. The first worker is given a shovel and an ax, the second, a bulldozer. Obviously, the

second worker will be much more productive, which illustrates that all the hard work in the world cannot compete with a high rate of capital investment. To increase wage rates without either an increase in productivity or a shift in consumer preferences requires coercion. It is quite possible to raise certain wages by excluding competing labor from the relevant markets. This distinction between voluntary and coercive methods of increasing wages is essentially a difference between creating wealth and redistributing wealth. Contrary to the claims of many members of Congress, government cannot create wealth by simply passing new laws. Otherwise, Congress would long ago have passed laws prohibiting poverty and establishing a minimum wage of $100, or even $1,000, an hour. In such a world, everyone could be a millionaire. But ours is a world of scarcity, and wealth is a product of the market process, not of legislative fiat. The Economic Effects of Minimum-Wage Laws Simply stated, if the government coercively raises the price of some good (such as labor) above its market value, the demand for that good will fall, and some of the supply will become "disemployed." Unfortunately, in the case of minimum wages, the disemployed goods are human beings. The worker who is not quite worth the newly imposed price loses out. Typically, the losers include young workers who have too little experience to be worth the new minimum and marginal workers who, for whatever reason, cannot produce very much. First and foremost, minimum-wage legislation hurts the least employable by making them unemployable, in effect pricing them out of the market. An individual will not be hired at $5.05 an hour if an employer feels that he is unlikely to produce at least that much value for the firm. This is common business sense. Thus, individuals whom employers perceive to be incapable of producing value at the arbitrarily set minimum rate are not hired at all, and people who could have been employed at market wages are put on the street. Some opponents of the minimum wage argue that it aggravates inflation by pushing up the costs of individual businesses. Those businesses, unwilling or unable to absorb such costs, pass them on to consumers in the form of higher prices. In this view, any artificial increase in labor costs can produce so-called cost-push inflation. There are several problems with the notion of cost-push inflation. The primary error in this analysis is that it confuses a shift in the structure of relative prices with a general rise in the level of prices. If the labor costs of businesses are increased and they succeed in passing on the costs to consumers in the form of higher prices, they will have managed to change the structure of relative prices at the expense of businesses that are unable to raise their prices because of more-intense competition. This is quite distinct from a general increase in the level of prices, which would be possible only if the real supply of money was increased. Many firms, however, may be unable to pass on their increased costs to consumers. It is consumers who ultimately determine the price of any good on the market, and they may decide that a business's product is not worth a higher price. Producers cannot force consumers to buy what they produce, and businesses cannot always arbitrarily increase the prices of their products simply because the government has arbitrarily increased their costs. This fact has important implications. If a business cannot simply pass along its new labor costs, it must somehow absorb them--by eliminating workers rendered unproductive by the new minimum wage, by replacing labor with more-productive machines, or by cutting back production. Those jobs not eliminated will be more demanding, as employers will use fewer people to produce the same amount of work. Teenagers suffer most from the adjustments required by an increase in the minimum-wage rate. These workers are generally the least experienced, least skilled, and least productive. According to the Bureau of Labor Statistics, the present unemployment rate for all teenagers actively seeking jobs is 16.5 percent, and the unemployment rate for black teenagers is 36.9 percent, more than [5] double the overall average. The existing minimum wage has contributed significantly to producing these abhorrent levels of unemployment. The damage done to teenagers is twofold. First, they lose income immediately. Second, because minimum-wage legislation has rendered them unemployable, teenagers cannot gain the ex- perience and skills that would make them employable at higher wages later. If there were no floor price on labor, teenagers could offer to work for a lower price until they had gained the training, experience, and skills they needed to command a higher wage. The damage done to minority teenagers is far worse. By establishing an arbitrary minimum, government reduces the costs of discrimination. In The State against Blacks, economist Walter Williams described how minimum-wage legislation alters the incentives of employers: Suppose that an employer has a preference for white employees over black employees. And for expository simplicity, assume the employees from which he chooses are identical in terms of productivity. If there is a law, such as the minimum wage law, that requires that employers pay the same wage no matter who is hired, what are his incentives? His incentives are [those] of preference indulgence. He must pay the black $3.35 an hour and he must pay the white $3.35 an hour. He must find some basis for choice. The minimum wage law says that his choice will not be based on economic criteria. Therefore, it must be based on [6] noneconomic criteria. If he wishes, the employer can discriminate against the black worker at zero cost.
[4]

Because no one is allowed to work for less than a set minimum, those who can command only the minimum and are discriminated against have no way to fight the problem. If wages were not fixed at a certain minimum, those who were discriminated against could compensate by offering their labor at a cheaper price. This would effectively increase the costs of discrimination for those employers who wished to practice it. Many proponents of higher minimum-wage rates insist that the teenager and minority argument is bogus. Minimum-wage legislation, they claim, is primarily intended to help adults trying to support a family. The minimum-wage earner trying to make ends meet with an annual income of $6,968 and three or four mouths to feed is often used as an example. A cursory study of demographic statistics suggests that this example does not accurately reflect the minimum-wage-earning population. According to the Census Bureau's "Current Population Survey," over 76 percent of all minimum-wage earners are not heads of households. Furthermore, the Bureau of Labor Statistics found that only 2.2 percent of working adults are earning the minimum waqe. But what about those who are actually struggling to live on the bottom rung of the economic ladder? Is the government helping them by arbitrarily establishing the minimum living wage? As noted earlier, government cannot create wealth simply by passing laws. Such laws succeed only in redistributing the existing wealth of society. The distortions caused by fixing the price of labor produce definite losers and winners; it is the least employable, the truly needy, who lose their jobs, and the winners either earn wages above the new fixed price or have protected jobs. Minimum-wage legislation fosters economic inequalities by creating a gap in the economic ladder: those on the bottom rung are kicked off, but those on higher rungs climb up. By no means are such government-created inequalities fair or just. Theory, Statistics, and Econometrics Economic theory demonstrates that minimum-wage legislation will inevitably create unemployment. It cannot, by its very nature, indicate how much unemployment will be generated in any particular instance. However, numerous statistical studies are in rare agreement in their support of a causal relationship between minimum wages and unemployment. For example, the 1983 Report to the U.S. Senate Committee on Labor and Human Resources of the General Accounting Office found virtually total agreement that employment is lower than it would have been if no minimum wage existed. This is the case even in periods of substantial economic growth. . . . The severity of the employment loss varies among different age, gender, and racial groups in the population. Teenage workers, for instance, have greater job losses, relative to their share of the population or the em[7] ployed work force, than adults. According to the 1981 Report of the Minimum Waqe Study Commission, the 46 percent rise in the minimum wage between 1977 and 1981 destroyed 644,000 jobs among teenagers alone. "The evidence is now in, and the findings of dozens of major economic [8] studies show that the damage done by the minimum wage has been far more severe than even the critics . . . predicted." A 1983 survey, "Time-Series Evidence of the Effect of the Minimum Wage on Youth Employment," found that studies conducted between 1973 and 1983 generally agreed that a 10 percent increase in the minimum wage would result in a 1 to 3 percent reduction in [9] teenage employment. Given these findings, the proposal to raise the minimum wage by nearly 40 percent could result in a 4 to 12 percent drop in the employment of teens. A recent study by Clemson University economists Richard B. McKenzie and Curtis Simon estimated that an increase in the minimum wage to $4.65 by 1990 would cost 764,000 jobs by that year and 1.9 million jobs by 1995. The economic output lost in [10] 1995 would total $70 billion (in 1982 dollars). The political embarrassment created by such estimates was graphically illustrated recently when the House Democratic leadership suppressed a Congressional Budget Office study that predicted a loss of 250,000 to 500,000 jobs if the minimum wage was increased to $5.05. The majority staff of the House Education and Labor Committee sent the study back and asked for a new version that lacked any reference to the bill's prospective impact on unemployment and [11] inflation. The majority staff director explained that the CBO had "provided information that was not requested." The Senate Republican Policy Committee, citing a General Accounting Office study, estimated that increasing the minimum wage [12] from $3.35 to $4.61, as suggested by AFL-CIO president Lane Kirkland, would eliminate between 124,000 and 619,000 jobs. It is not surprising that AFL-CIO economist John L. Zalusky disputes these findings. He predicts that a $1 increase in the minimum wage would eliminate very few jobs, and his "hunch is that a wage hike would provide a mild stimulus" to economic [13] growth. According to Zalusky's model, created for the union by the econometrics firm Data Resources Inc. (DRI), a $1 increase would eliminate 450,000 jobs during the next eight years. However, Zalusky says, this loss has little importance when compared [14] with the 11 million jobs that the model predicts would be created in the same period. Zalusky claims that such "real world evidence" casts doubt on the "theoretical constructs" of economics. Zalusky's casual dismissal of theoretical constructs implies that his model is somehow theory-free and concerned with only the objective numbers. This is simply not the case. Any statistical or econometric model requires that some theory be used to [15] determine what data are needed to test it. In fact, two theoretical assumptions of Zalusky's model make its results quite deceptive. First, the DRI model ignores potential workers who are not seeking employment and therefore are not counted in the official unemployment statistics. But one of the most destructive aspects of wage fixing is that it discourages a large number of potential workers from looking for jobs. A proper accounting would include all unemployed workers, not just those seeking employment.

An even greater problem with the model is that it ignores the increase in employment that might have occurred if a minimum wage had not been imposed in the first place. A growing economy creates jobs. It is misleading to claim that a minimum wage does not create a net decrease in the total number of jobs. A net decrease would indicate that the minimum wage had destroyed more jobs than the market process had been able to create in the same period. Such a scenario, although possible if the minimum was fixed high enough, has not yet occurred. The market has somehow compensated for past legislative foolishness. A more accurate accounting would compare the number of jobs created under minimum-wage restrictions with the number of jobs that might have been created in the absence of those restrictions. Such considerations strongly suggest that most studies, including the DRI model, have underestimated the destructive effect of minimum-wage legislation on employment. Minimum wages may generate considerably more unemployment than such studies estimate. The difficulty of putting numerical values on what would have happened had the government not interfered, compounded by the proponents' willingness to "throw numbers out till nobody can have faith in the numbers," indicates that the numbers have not captured and cannot capture the whole story. Who Benefits from Minimum-Wage Legislation? Labor unions and their members are the most obvious beneficiaries of government-imposed minimum wages. As the established elite of the workforce, union members are on the receiving end of the minimum wage's redistribution process. To fully understand how unions gain from minimum-wage legislation, one must consider the essential nature of unions. The success of a union depends on its ability to maintain higher-than-market wages and provide secure jobs for its members. If it cannot offer the benefit of higher wages, a union will quickly lose its members. Higher wages can be obtained only by excluding some workers from the relevant labor markets. As F. A. Hayek has pointed out, "Unions have not achieved their present magnitude and power by merely achieving the right of association. They have become what they are largely in consequence of the grant, by [16] legislation and jurisdiction, of unique privileges which no other associations or individuals enjoy." A labor union's ability to maintain special privileges for its members is reflected in the income data of the Bureau of Labor Statistics. According to a 1987 document entitled "Employment and Earnings," the median weekly wage for union members is $439; for nonunion workers, it is $325. Based on a 40-hour week, the hourly wage is $10.97 versus $8.12. Unions attempt to fix or limit the supply of labor in a particular market, which raises the value or price of the labor available within that market. In this sense, a union functions as a redistributive institution. The winners are those still included in the labor market, the union members. The losers are those excluded from the market, the unemployed. As would be expected, labor unions are the main political force behind minimum-wage legislation. Although unions already hold privileged positions in labor markets, minimum wages further increase their gains by raising employers' labor costs. As long as union members earn wages above the minimum rate, their positions are made more secure by the government policy that eliminates those who might undercut the union wage. People willing to work for less than the government's minimum are not allowed into the labor market at all. Indeed, union leader Edward T. Hanley stated in a catering industry employees' publication, "The purpose of the minimum wage is to . . . provide a floor from which we can upgrade your compensation through collective [17] bargaining." A second barrier tends to insulate union members from the changes that a minimum-wage increase requires of others. Because union members already enjoy institutionally protected jobs, there is a good chance that they will be the last fired in any cost-cutting campaign by businesses trying to cope with the new costs imposed by a higher minimum wage. It is not surprising that the AFL-CIO, representing 90 percent of all unions, has lobbied hard for another increase in the minimum wage. Political pressure from the AFL-CIO is the factor primarily responsible for breathing new life into the debate over the minimum wage. "Congressional Democrats, under pressure from organized labor, will try to move forcefully on the [minimum-wage] issue. Unions played an important role in helping the party take back the Senate, and labor leaders want to see progress now that [18] Democrats control both chambers." It is Big Labor and its political representatives that perpetuate the minimum-wage myth. The advocates of minimum-wage laws-shrouded in the rhetoric of fairness and economic justice--always come back to roost in Washington. As James Buchanan pointed out, "People who are damaged by minimum-wage legislation are not an effective pressure group, whereas the groups that support [19] minimum wages, namely the labor union interests being protected, are much more effective in the political process." Conclusion Regardless of the intentions of its supporters, the proposed minimum-wage legislation cannot achieve their stated goal of raising the real income of the poor to a more livable level. Indeed, it is an extremely shortsighted policy that can only breed destruction, by eliminating the jobs of those who need work most: the poor, the young, and those suffering from discrimination. What has been touted as a matter of basic economic justice turns out to be a self-serving issue for many of its supporters. If the minimum wage is increased, labor unions and their influential friends in Congress will make big gains. Unfortunately, everyone else will lose. In the long run, however, such policies will hurt every-one. As unemployment increases, business becomes more and more unproductive, and the overall quality of life declines, all Americans will suffer.

http://mises.org/daily/2130

Mythology of the Minimum Wage

Mises Daily: Wednesday, May 03, 2006 by D.W. Mackenzie

Once again politicians and pundits are calling for increases in the legal minimum wage. Their reasons are familiar. Market wages are supposedly immoral. People need to earn a "living wage." If the minimum wage went up at least to $7, or better still to near $10 an hour, millions would be lifted out of poverty.[1] The economic case against minimum wage laws is simple. Employers pay a wage no higher than the value of an additional hour's work. Raising minimum wages forces employers to dismiss low productivity workers. This policy has the largest affect on those with the least education, job experience, and maturity. Consequently, we should expect minimum wage laws to affect teenagers and those with less education. Eliminating minimum wage laws would reduce unemployment and improve the efficiency of markets for low productivity labor. There are a few economists who have been leading the charge for higher minimum wages. Some of these economists have obvious ideological leanings. Economists connected with the Left -orientated Economic Policy Institute and the Clinton Administration have concocted a rational for minimum wage increases. According to these economists higher wages make employees more content with their jobs, and this leads to higher worker productivity. Thus workers will be worth paying a minimum wage once their employers are forced to pay these wages. Of course, if this were true if employers could get higher productivity out of less educated and experienced workers by paying higher wages they would be willing to do this without minimum wage legislation. But the economists who make this case claim to have empirical evidence that proves them right. Economists David Card and Alan Krueger have published studies of the fast food industry indicated that small increases in the minimum wage would cause only minor job losses, and might even increase employment slightly in some instances. These studies by Card and Krueger show only that a small increase in minimum wage rates might not cause much of an increase in unemployment. Such studies ignore the fact that the current level of minimum wages are already causing significant unemployment for some workers. The economic case for minimum wage increases has gained some ground with public and even professional opinion. Even some free market leaning economists, like Steven Landsburg, have conceded that minimum wages increases do not affect employment significantly.[2] Landsburg notes that critics of minimum wage laws emphasize that they have a disproportionate effect on teens and blacks. But he dismisses these critics because "minimum wages have at most a tiny impact on employment The minimum wage kills very few jobs, and the jobs it kills were lousy jobs anyway. It is almost impossible to maintain the old argument that minimum wages are bad for minimum-wage workers." Real statistics indicate that the critics of minimum wage laws were right all along. While it is true that minimum wages do not drive the national unemployment rate up to astronomical levels, it does adversely affect teenagers and ethnic minorities. According to the Bureau of Labor Statistics the unemployment rate for everyone over the age of 16 was 5.6% in 2005. Yet unemployment was 17.3% for those aged 16-19 years. For those aged 16-17 unemployment was 19.7%. In the 18-19 age group unemployment was 15.8%. Minimum wage laws do affect ethnic minorities more so than others.[3]The unemployment rate for white teens in the 16-17

age group was 17.3% in 2005. The same figures for Hispanic and black teens were 25% and 40.9% respectively. Of course, these figures decrease for older minorities. Blacks aged 18-19 and 20-24 had 25.7% and 19.9% unemployment in 2005. For Hispanics unemployment was slightly lower 17.8% at age 18-19 and 9.6% at age 20-24. Landsburg might maintain that most of these lost jobs are lousy jobs that teens will not miss. DeLong thinks that minimum wage laws can help to avert poverty workers who keep their jobs at the minimum wage gain much, while unemployed workers lose little. Part of the problem with this argument is that it involves arbitrary value judgments. According to mainstream economic theory, we achieve economic efficiency when markets clear because this is how we realize all gains from trade. With teen unemployment in double digits running as high as 40.9% it is obvious that some labor markets are not clearing. If labor market imperfections led to such levels of unemployment, economists like DeLong, Card, and Krueger would call for government intervention to correct these "market failures." Yet they find double digit teen unemployment acceptable when it derives from government intervention. Why? Because they want to use such policies to redistribute income.[4] Mainstream economic theory lacks any basis for judging the effects of income redistribution. According to textbook economics we attain the highest level of economic efficiency when markets clear, when we realize the maximum gains from mutually advantageous trade. Income transfers benefit some at the expense of others. Economists have no scientific methods for comparing gains and losses through income transfers.[5] Once economists depart from discussing efficiency conditions and begin to speak about income redistribution, they become advocates of a political agenda, rather than objective scientists. The jobs lost to minimum wage laws might not seem worthwhile to DeLong or Landsburg, but they obviously are worthwhile to the workers and employers whom these laws affect. Why should the value judgments of a few armchair economists matter more than the interests of would be employees and employers? These jobs may be "lousy jobs," but one could also argue that these jobs are quite important because they are a first step in gaining job experience and learning adult responsibility. A second problem with the case against minimum wages is that they affect older workers too. As already noted, workers in the 20-24 age group appear to be affected by minimum wage laws. Unemployment rates in the 25-34 age group are higher than for the 35-44 age group. The unemployment rate for blacks and Hispanics aged 25-34 were 11.1% and 5.8% in 2005. Unemployment for whites and Asians in this age group were 4.4% and 3.5%. In the 35-44 age group the unemployment rates for these four ethnicities were 7.2%., 5.1%, 4.4%, and 2.7%. A comparison of black to Asian unemployment is revealing. In the United States, Asians tend to attain higher levels of education than blacks. Thus minimum wage laws are relatively unimportant to Asian Americans. Consequently, Asians are able to attain unemployment as low as the 2-3% range. For Asians aged 16+ the unemployment rate was only 3.3% in 2005. For Asians in the 20-24 age group unemployment was 5.1%. These figures are only a fraction of the unemployment rates experienced by blacks in 2005. There is no reason why white, Hispanic, and black Americans cannot also reach the 2-3% range of unemployment. Supporters of minimum wage laws do not realize that prior to minimum wage laws the national unemployment rate did fall well below 5%. According to the US Census, national unemployment rates were 3.3% in 1927, 1.8% in 1926, 3.2% in 1925, 2.4% in 1923, 1.4% in 1919 and 1918, 2.8% in 1907, 1.7% in 1906, and 3.7% in 1902.[6] Even today, some states have unemployment rates as low as 3%. Virginia now has an unemployment rate of 3.1%. Wyoming has an unemployment rate of 2.9%. Hawaii has an unemployment rate of 2.6%. National

unemployment rates seldom drop below 5% because some categories of workers are stuck with double digit unemployment. Given these figures, it is quite arguable that minimum wage laws keep the national unemployment rate 3 percentage points higher than would otherwise be the case. Economist Arthur Okun estimated that for every 1% increase in unemployment GDP falls by 2.5-3%. If minimum wage laws are responsible for keeping the national unemployment rate 3 percentage points above where it would otherwise be, then the losses to minimum wage unemployment are substantial. Since Okun's law is an empirical proposition it is certainly not constant. Eliminating minimum wages might not increase GDP as much as this "law" indicates. However, the elimination of minimum wage laws would surely have a positive effect on GDP. In any case, economic theory and available data indicate that minimum wage laws do result in economic inefficiency. The implementation of a "living wage" would only increase these losses. Do proponents of living wages really want to see unemployment rates among ethnic minorities and teens climb even higher? The economic case for a living wage is unfounded. Current minimum wage rates do create high levels of unemployment among low productivity workers. Higher "living wages" would only make these problems worse. The alleged moral case for a living wage ignores the fact that minimum wage increases adversely affect the very people whom advocates of living wages intend to help. If politicians wish to pursue sound policies, they should consider repealing minimum wage laws, especially where teens are concerned. Unfortunately, most politicians care more about political expediencies than sound economic policy. This being the case, minimum wages will increase unless public opinion changes significantly.