Minimum wage misperceptions
Economists are divided on how much unemployment the minimum wage causes. But there is little doubt that a minimum wage decreases the demand for unskilled workers. What wage potential employers are willing to pay depends on what the employer believes that hiring an additional worker would be worth to him. No employer will hire a worker unless he believes the worker will contribute as much value as the worker costs.
Who is hurt the most by a minimum wage? Teenagers having no work experience and the unskilled, 20 or over, without work experience. And as the data show, black teenagers and the black unskilled are affected the most, which is an unintended consequence.
The unemployment statistics speak for themselves. Compare the unemployment rates of teenagers and the rest of those in the civilian labor force. The unemployment rate during the first quarter of 2014 was 6.5 percent for those 20 years of age and older but 20.9 percent for those age 16 to 19. White teenagers had an unemployment rate of 20.9 percent. The rate for black teenagers was 34.5 percent. For Latin and Asian teens, it was 24.4 percent and 15.4 percent, respectively.
As the data show, the current national minimum wage of $7.25 per hour affects blacks more than any other group. Even in the population over 20 years of age, the black rate of unemployment was 11.5 percent compared to whites at 5.7 percent.
How many would be employed if there were no minimum wage at all? Nearly all of those willing and able to work. Once employed and having a good work experience, they would find employers bidding for them and bidding up their wages. The average wage in the leisure and hospitality sector, the lowest paid group reported by the U.S. Bureau of Labor Statistics, in May 2014 was $13.73 per hour, in retail trade it was $16.96, while the average worker in the private sector, including the highly skilled, received $24.38 per hour.
Getting a first job is very important to an individual’s skill development. If one has to pay an unskilled worker an amount of money that exceeds the skill he is expected to acquire by on-the-job training in a reasonable time on the job, employers will be very reluctant to experiment and to employ additional workers, whereas if wages are lower, employers will be more willing to take a chance on hiring.
Unfortunately teenagers do not know why they are unable to find a job and are easy prey to those who argue that it is the fault of the capitalist system. No, it is simply another instance of government price controls, which always result in shortages. When one has to pay more for labor, demand is limited.
Again, the minimum wage is another example of government interfering in the economy to the detriment of general economic well-being. Unfortunately, in the case of the minimum wage, its burden falls almost entirely on teenagers and the unskilled and it is especially hard on black teenagers and the black unskilled.
Ray Richman is a professor emeritus of public and international affairs at the University of Pittsburgh.