The Right Opinion

Higher Minimum Wages

By Walter E. Williams · Feb. 27, 2013

In his State of the Union address, President Barack Obama proposed raising the minimum wage from $7.25 an hour to $9 an hour. That would be almost a 25 percent increase. Let's look at the president's proposal, but before doing so, let's ask some other economic questions.

Are people responsive to changes in price? For example, if the price of cars rose by 25 percent, would people purchase as many cars? Supposing housing prices rose by 25 percent, what would happen to sales? Those are big-ticket items, but what about smaller-priced items? If a supermarket raised its prices by 25 percent, would people purchase as much? It's not rocket science to conclude that when prices rise, people adjust their behavior by purchasing less.

It's almost childish to do so, but I'm going to ask questions about 25 percent price changes in the other way. What responses would people have if the price of cars or housing fell by 25 percent? What would happen to supermarket sales if prices fell by 25 percent? Again, it doesn't require deep thinking to guess that people would purchase more.

This behavior in economics is known as the first fundamental law of demand. It holds that the higher the price of something the less people will take and that the lower the price the more people will take. There are no known exceptions to the law of demand. Any economist who could prove a real-world exception would probably be a candidate for the Nobel Memorial Prize in Economic Sciences and other honors.

Dr. Alan Krueger, an economist, is chairman of the president's Council of Economic Advisers. I wonder whether he advised the president that though people surely would be responsive to 25 percent increases in the prices of other goods and services, they would not be responsive to a 25 percent wage increase. I'd bet the rent money that you couldn't get Krueger to answer the following statement by saying either true or false: A 25 percent increase in the price of labor would not affect employment. If anything, his evasive response would be that found in a White House memo, reported in The Wall Street Journal's article titled “The Minority Youth Unemployment Act” (Feb. 15), namely that “a range of economic studies show that modestly raising the minimum wage increases earnings and reduces poverty without measurably reducing employment.” The WSJ article questions that statement: “Note the shifty adverbs, 'modestly' and 'measurably,' which can paper over a lot of economic damage.” My interpretation of the phrase “without measurably reducing employment” is that only youngsters, mostly black youngsters, would be affected by an increase.

University of California, Irvine economist David Neumark has examined more than 100 major academic studies on the minimum wage. He states that the White House claim “grossly misstates the weight of the evidence.” About 85 percent of the studies “find a negative employment effect on low-skilled workers.” A 1976 American Economic Association survey found that 90 percent of its members agreed that increasing the minimum wage raises unemployment among young and unskilled workers. A 1990 survey found that 80 percent of economists agreed with the statement that increases in the minimum wage cause unemployment among the youth and low-skilled. If you're looking for a consensus in most fields of study, examine the introductory and intermediate college textbooks in the field. Economics textbooks that mention the minimum wage say that it increases unemployment for the least skilled worker.

As detailed in my recent book “Race and Economics” (2012), during times of gross racial discrimination, black unemployment was lower than white unemployment and blacks were more active in the labor market. For example, in 1948, black teen unemployment was less than white teen unemployment, and black teens were more active in the labor market. Today black teen unemployment is about 40 percent; for whites, it is about 20 percent. The minimum wage law weighs heavily in this devastating picture. Supporters of higher minimum wages want to index it to inflation so as to avoid its periodic examination.

COPYRIGHT 2013 CREATORS.COM

8 Comments

Lee in Phoenix said:

Don't tell Barry about this. He'll only conclude its not fair that young blacks are ALREADY unemployed in greater numbers than young whites, so he'll want to start cutting them checks to "level the playing field" and then only young white people will want those $9 jobs which will be nonexistent because .... oh, never mind.

Wednesday, February 27, 2013 at 8:25 AM

Wayne in Hinesville, GA said:

It's a "gimmie, gimme" world out there today. Don't dare ask me to get an education, find a job, and become a productive citizen. Just give me my welfare check, my subsidized housing, food stamps, and my free cell phone and live is good. I don't care about the minimum wage because I'm not looking for a job anyway. Sarcasm but true. We are becoming a nation of parasites!

Wednesday, February 27, 2013 at 10:05 AM

READY4ACHANGE in ILLINOIS replied:

AMEN Old Sarge... makes me want to quit my job and sit on the dole! Except I have a conscious and can't just sit on my arse and collect while other people work hard - for less.

Wednesday, February 27, 2013 at 10:25 AM

TheHarp in Oregon replied:

Parasites indeed. Poorly adjusted parasites at that because they are destroying their host.

Wednesday, February 27, 2013 at 11:39 AM

Anton D Rehling in Olympia, WA said:

Obama et al knows exactly what the raise in minimum wage accomplishes. That oppressive group has been doing this all by design. Let’s face it Walter, put more people dependent on government largeness and you have increased your constituency. The Marxist policies of the communist if chief are designed to bring this country to its knees and the fall must happen as soon as possible for the subjugation of this population to be complete, before the next election. If Obama et al is successful and takes over the house in 2016 and maintains the Senate, with the help of election fraud that put him in office in 2012, combined with the dumbing down of America Obama will be hoping to have a 3rd, 4th and 5th term (El Presidente for life) and the US of A will no longer be a country of individual rights and liberty, it will be full blown communist. Of course there will be rebellion, he has allowed for that and has plans to crush that with military force. One thing Obama is not calculating into his equation; the Freedom Loving citizens are not as unorganized as he believes, we look like a disorganized mess, but when pushed we will come together like iron filings to a magnet and Obama et al will face the wrath of the still armed American people.

Wednesday, February 27, 2013 at 10:36 AM

Howard Last in Wyoming said:

I know the problem Dr. Williams with your thinking, we haven't raised the minimum wage high enough. $9 a hour is insufficient, it should be at least $500 a hour which is a million a year (if we assume 2000 hours a year). This will obviously work, because who has ever heard of a poor millionaire. It will also have a very beneficial effect on poverty. For a further discussion on this check out Weimar Republic.

Wednesday, February 27, 2013 at 10:40 AM

HP in Kalispell, MT said:

I agree with Howard. We keep nickel and dime'ing the minimum wage. Why not make it $40 an hour and fix everything. Let's cut to the chase and be done with it.

Wednesday, February 27, 2013 at 12:06 PM

Tod the tool guy in brooklyn ny said:

When communists raise the min wage, entry level employment will be what libs deserve---MINIMAL!!

Wednesday, February 27, 2013 at 4:54 PM