How Minimum-Wage Laws Hurt the Young

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Most labor-market activity is regulated by some level of government. Well-meaning people put political pressures on government to enact laws they think will help disadvantaged people.

One way government regulates, "in the interest" of the disadvantaged, is by setting maximum and minimum prices at which transactions can legally occur. But the results of minimum-wage laws, which set base prices for human labor, are often at considerable variance with the intentions of well-meaning people who enact them.

To the extent that the minimum-wage law raises the pay level to that which may exceed the productivity of certain workers, employers will predictably make adjustments in their use of labor, producing gains for some workers at the expense of others.

Workers who retain their jobs and receive a higher wage clearly gain. The adverse effects are borne by those who are most disadvantaged in terms of marketable skills--those who lose their jobs and their income or who are not hired in the first place.

In short, if a wage of $3.35 per hour (not including mandated fringes such as Social Security) must be paid no matter who is hired, it does not pay the firm to hire workers who are so unfortunate as to be capable of producing, say, only $2 per hour of marketable goods or services.

That being the case, who really bears the burden of the minimum wage? The workers who bear the heaviest burden are those who are most marginal: youths in general, because they are low-skilled due to their age, immaturity, and lack of work experience; and racial minorities such as blacks and Hispanics, who as a result of racial discrimination and a number of other socioeconomic factors are disproportionately represented among low-skilled workers.

It is no accident that these two groups suffer a high rate of unemployment. Even during relatively prosperous times, youth unemployment ranges from two to three times that of the general labor force. Black youth unemployment ranges from three to five times that of the general labor force, and the rate for black teen-agers now hovers at an appalling 50 percent.

Although many people are familiar with recent statistics on black youth unemployment, few are aware of the black-white youth-unemployment statistics for earlier periods--and the contrast to present trends is instructive. In 1948, for example, unemployment for blacks aged 16 and 17 was actually lower--9.4 percent--than the comparable figure for whites, 10.2 percent.

In the same period (until the mid-50's), black youths generally were either just as active in the labor force or more so than white youths. Since the 60's, according to U.S. Labor Department figures, both the labor force participating rate and the employment rate have fallen to what they are today.

Can racial discrimination explain this kind of reversal? Probably not. It would be difficult to support the argument that employers have become more racially discriminatory since 1948--especially in light of new civil-rights acts, affirmative-action programs, and a host of other legal guarantees. Can we say that unemployment for blacks in the past was lower because blacks had educational attainment levels equal to or higher than whites? Obviously, we cannot.

The answer lies elsewhere. One of the answers is that minimum-wage laws, constantly increasing in coverage and wage level through the past several decades, have priced low-skilled youths out of the job market. And those who suffer the most are black and Hispanic youths whose education in inner-city schools has failed to prepare them for job competition.

Those who defend the minimum wage mean well. But truly compassionate policy requires dispassionate analysis. The minimum-wage laws have imposed incalculable harm on the most disadvantaged members of our society, by shutting them out of the early work opportunities that provide not only pocket money but respect for work itself.

Abolition of the minimum wage, far from promoting poverty and exploitation, would be a major step toward economic justice. And to address the crisis in youth unemployment that will be exacerbated when school gets out for the summer, a national subminimum wage for teen-age workers would be a good place to start.

Vol. 02, Issue 33, Page 18

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