Ken Silva is a ConservativeHome College Columnist winner. He studied Economics and Politics at Kent State University.
It is another long summer for teenagers searching for jobs.
With unemployment for 16 to 19-year-olds hovering around 24 percent—nearly double the rate of 10 years ago and close to the record high 27.6 percent of 2009—teenagers are the hardest-hit demographic among the civilian population.
The massive unemployment rates among teenagers and other unskilled workers can be attributed to—in no small part—minimum wage laws.
Minimum wage laws have popular support because they are viewed as a protection against labor being exploited by capitalists, and as a way to insure a livable income for workers. However, minimum wage laws fail to fulfill these goals for a simple reason: government law cannot change the laws of economics.
Most people understand the law of demand—the law that people will buy more of a good when it is cheaper, and vice versa—when it concerns consumer goods. It is simple to conceive that when government tries to set prices on consumer goods, shortages or surpluses occur in the market. For example, if the government tried to set the price of milk at $10 per gallon, one can imagine that far less milk would be purchased.
However, many of the same people that recognize the absurdity of price controls in the goods market change their position when it comes to the labor market. They fear that without a minimum wage everybody would be making pennies an hour for backbreaking labor. Such fears ignore the fact that a wage is simply the price of one’s labor, and thus wages follow the same economic laws of supply and demand that every other product does.
Imagine a factory worker whose labor was worth $5 an hour to his boss as a press operator. If the government set the minimum wage at $6, what do you think would happen to the worker? It may be possible that his boss is an altruist and loves to lose money keeping him employed, but the most likely scenario is that the worker will lose his job.
Conversely, if the boss tried to pay the worker only $1 an hour for his labor, it is likely that another businessman would outbid him and hire the worker for himself. Henry Ford did this in 1914, when he instituted the “Five Dollar Day” plan. Ford’s $5 dollars a day was far higher than any of his competitors’ wages, and thus attracted the best workers and helped Ford become one of the dominant auto manufacturers of the world.
The most atrocious effect of the minimum wage is not necessarily how many jobs it destroys, but the type of jobs it destroys: low-skilled jobs. Low-skilled workers are often those who can least-afford to lose their jobs—people living close to poverty, as well as those who would rather enter the labor force than go to school.
When such people lose their jobs, it hurts society twofold: first, society loses the productivity of the newly unemployed person’s labor; second, society bears the burden of the unemployed entering the welfare system or taking out student loans that he otherwise would not have taken if he were employed.
President Obama stated in 2009 that he wanted to raise the minimum wage to $9.50 by 2011. While this may score him political points among his supporters—who are seemingly ignorant of the true effects that an increased minimum wage would have on the economy—such a policy would only bring about more unemployment. If Obama and the Congress were sincere about helping the poor and unemployed, they would lower the minimum wage and allow unskilled labor to go back to work.
We have a minimum wage in the UK and it is a bad thing. It has caused wage stagnation, because it is possible to get semi and even skilled labor for peanuts. At the other end of the spectrum it forces the low skilled onto unemployment benefit, as employers source illegal and immigrant workers.
The government also has no choice but to give subsidies to the employed who cannot support themselves and a family on wages that are minimum in every respect. As a result our deficit increases for every minimum wage job that is created.
Like most socialist ideas it traps people in a dependency cycle with the government.
Of course the moment a down turned came, it became impossible for people to price themselves into work. As a result our recovery is even more sluggish than usual.
Minimum wages are a bad idea as they hurt just about everyone.
Posted by: Ross J Warren | 08/09/2011 at 05:07 PM