Minimum Wage Laws are UNemployment Laws

By Walter Block of EconLog. 

"The minimum wage law is a snare and a delusion. It preys upon the weakest economic actors in the land. Before the advent of this pernicious law way back in the 1930s, the unemployment rate of whites and blacks, young and old, was about the same. There were no marked differences regarding joblessness for any of these categories. Nowadays, the unemployment rate of teenaged blacks is quadruple, yes, quadruple, that of middle aged whites.

Why is this?

The law is an unemployment law, not an employment law. It mandates that anyone with a productivity level below that stipulated by law will be unemployable. If the law requires a wage of $10 per hour, and your productivity is only $7 hourly, then any firm foolish enough to hire you will effectively lose $3 every 60 minutes. Either they will not hire you, or, they will go broke if they do that once too often. Raising the level from $10 to $15 will just mean that those with a productivity of $13, who could have worked with a law requiring salaries of $10, can no longer do so.

The minimum wage law is thus not a floor which when raised boosts compensation to labor. No, rather, it is a high jump bar that the worker needs to exceed in order to get a job in the first place. The higher is it raised, the harder it is to jump over, into employment. If it really were floor, undergirding wages, why not  boost it to $100 per hour, or better yet $1000? Then, we’d all be rich. Why not cut off all foreign aid to poor countries, and tell them, instead, to institute a minimum wage law, and keep raising its level until national poverty were ended?

Bernie Sanders wants to raise the minimum wage level to $17 per hour. That is more than double the present federal level of $7.25. Does he want to move black teen unemployment rates up from quadruple that of middle aged whites to quintuple? To sextuple? To septuple levels? (True confession: I had to look up these words). Presumably not. What, then, is the explanation for his stance? Economic illiteracy.

All too often, research on this matter focuses on increases in the minimum wage level. Who cares about mere increases? The entire rotten law ought to be repealed, and salt sown where once it stood. For at any level, it makes it impossible for those whose productivity is below the level stipulated by law. Card and Krueger [1] would disagree. They found that a slight increase in its level in New Jersey did not lead to more unemployment of the unskilled than in neighboring Pennsylvania, which did not raise its mandated legal wage. But their statistics were proven to be unreliable, and, in any case, we should be comparing the law with its absence, not with a slightly higher or lower level.

Fire burns people. It does so at 150 degrees Fahrenheit, as well as at 152 degrees. Suppose a chemist cannot discern much of a difference between these two temperatures, and then concludes that there is nothing wrong with burning people. What should we say to him? We should aver that there is something seriously wrong with his analysis. We should respond to the Cards and Kruegers of the world in much the same manner.

[1] Notable supporters of minimum wage legislation are Card and Krueger, 1994, 2000. For critiques, see Block, 2001;  Burkhauser, Couch and Wittenburg, David, 1996;  Burkhauser and Finnegan, 1989; Gallaway and Adie, 1995;  Hamermesh and Welch, 1995; Neumark and Wascher, 2000."