Harm of minimum-wage laws is neglected and poorly understood



If our nation’s objective is to raise unemployment among the unskilled, less experienced, entry-level workers, we could not find a better means than an increase in the minimum wage.

And if we wish to target the self-esteem, the confidence of struggling youth, a direct bludgeon is to increase this wage rate.

And if, among our inexperienced, unskilled youth, one wants to delay their acquisition of work skills and the discipline required to hold a job, one would be hard pressed to locate a better choice than the imposition upon them of a minimum wage.

Work experience among our raw youth is one of the most effective, if not the most effectual, means to their work-skill development. Also, if one seeks to blunt the emergence of leadership talents among our most struggling youngsters, then increase the minimum wage. These minimum-wage outcomes – observable everywhere yet with causes difficult to trace because of the murkiness of the dynamic passing scene – nevertheless are linked fundamentally to minimum wage laws.

Contrary to the prevalent view, subjecting these hard-pressed youths to low wages and opportunities with limited long-run potential still is a fruitful application of their efforts. It is better than nothing, and superior to a career of idleness combined with welfare and food stamps. It is careless if not cruel to consign such citizens, even temporarily, to these limited outcomes.


THESE HARMFUL effects have been neglected for too long and deserve to be heard. They are important. Unemployed youths – especially among the inexperienced, the unskilled and the uneducated – suffer painful delays in overcoming these weaknesses and thus lag behind their peers in personal development. Thus, both the individual and society lose.

Simplest tasks of work discipline must be learned. Simplest values of reporting to places of employment on time and performing the assigned work need to be acquired. The reader may counter with the observation that this is the customary function of the family. Yes, but in far too many instances there is no traditional family.


MINIMUM-WAGE laws throw
functions previously performed by families on the backs of struggling, handicapped youth, to fend best for themselves. And many remain scarred for life, leaving broken, nontraditional families in their wake, with offspring prone to continue the unfortunate cycle.

Because these wage laws’ employment effects are controversial and difficult to quantify does not mean their strong theoretical negative influences on employment do not exist, or are less weak in their impact on society. These troubling effects have strong indirect empirical support. In fact, despite these controversial results, polls of professional economists find overwhelming support for the laws’ negative impact on employment.

And now let’s look at the crucial numbers. The Bureau of Labor Statistics has collected data on the proportion of people employed or looking for work (the labor-participation rate) by age groups since 1948. For February, it noted that this rate (32.9 percent) for 16- to 19-year-olds was the lowest since the bureau started recording such data. In April, this agency recorded the second-lowest participation rate (33.2
percent) followed by a rate of 33.3 percent in January, the third-lowest.


AS EXPECTED, THE 20- to 24-year-olds fare better, but still at a dismal rate. The participation rate was 69.7 percent for August 2012, its lowest since 1973, and 70.2 percent for this past April, the lowest rate since 1973. The recent month of May displayed a disappointing rate of 71 percent.

Indeed, minimum-wage laws have a crippling employment effect on our precious youth, the ones we should try to avoid hurting at all.

Finally to further complicate matters, minimum-wage laws are in apparent conflict with the U.S. civil rights statutes. It is well-established that a high proportion of the currently unemployed youth is black (see Richard Vedder and Lowell Gallaway, Out of Work: Unemployment and Government in 20th Century America, The Independent Institute, 1993). Advocates of these laws point out that if employment policy has a disparate impact on racial discrimination (a court ruling that relieves the prosecutor from having to prove intent to discriminate), then it is inconsistent with Title VII of the Civil Rights Act of 1964, a view that has received strong federal court support.

However, they look away, or totally ignore, the all-important empirical observation that a minimum-wage law results in having a tragic impact on minority youth employment (a disparate impact?), thus rendering minimum-wage laws apparently inconsistent with our Civil Rights Act of 1964.


(The writer is a professor emeritus of financial economics at the University of Georgia. He lives in Aiken, S.C.)