The American people are being sold a bill of goods – lied to – concerning the effects of a minimum wage. Federal and state minimum wage mandates do nothing to help provide a “living wage” nor does it do anything to improve the overall employment picture. Walter E. Williams’ column today discusses how this government interference ensures about one in four minority youths are unemployed.
When the government mandates you pay employees a wage that is more than what a free market would determine, businesses have decisions to make. They can…
- Increase prices
- Cut expenses (reduced quality/service, cut employee hours, reduce benefits, layoffs…)
- Accept a lower profit margin, or
- Some combination of 1, 2 and 3.
For a small business with thin profit margins, these are very difficult decisions to make. If you are a small business employer who happens to be part of the group of 25 percent who are underwater in their home mortgage, you’re not going to be able to easily take a pay cut.
Can you increase prices? Sure … but what will the market pay? Unlike the government mandating what you must pay employees, the government does not mandate private individuals buy a product or service from you (yet).
Will you elect to work more hours and not hire those extra seasonal employees this summer? Well, that’s exactly what’s happening, and there is a staggering discriminatory effect in play.
Go read Williams’ full article, which references a study Unequal Harm: Racial Disparities in the Employment Consequences of Minimum Wage Increases from the Employment Policies Institute. The study focused …
… on 16-to-24 year-old males without a high school diploma, a group that previous studies suggest are particularly susceptible to wage mandates. Among white males in this group, the authors find that each 10 percent increase in a federal or state minimum wage decreased employment by 2.5 percent; for Hispanic males, the figure is 1.2 percent.
But among black males in this group, each 10 percent increase in the minimum wage decreased employment by 6.5 percent.
The effect is similar for hours worked: each 10 percent increase reduced hours worked by 3 percent among white males, 1.7 percent for Hispanic males, and by 6.6 percent for black males.
Why the disparity?
Why do black males suffer more harm from wage mandates than their white or Hispanic counterparts?
The authors find that they’re more likely to be employed in eating and drinking places–nearly one out of three black young adults without a high school diploma works in the industry. Businesses in this industry generally have narrow profit margins and are more likely to be adversely impacted by a wage mandate. There’s also substantial variation in regional location, as black young adults are overwhelmingly located in the South and in urban areas.
It’s also likely that unobserved differences in skill level and job experience play a role. To the extent that these differences are concentrated among young men of a particular race or ethnicity, this group would have the greatest risk of losing jobs when the minimum wage is increased.
Williams sums up…
The best way to sabotage chances for upward mobility of a youngster from a single-parent household, who resides in a violent slum and has attended poor-quality schools is to make it unprofitable for any employer to hire him. The way to accomplish that is to mandate an employer to pay such a person a wage that exceeds his skill level.