Let’s Not Devastate Low-End Workers’ Job Prospects

President Clinton and Democrats in Congress want to raise the minimum wage from $4.25 to $5.15 an hour. What’s wrong with that?

A lot. Let’s begin with the fact that a hike in the minimum wage will hurt the people it’s supposed to help.

If you don’t believe me, listen to liberal economists William Baumol and Alan Blinder (whom Clinton appointed to the Federal Reserve Board). They wrote in their textbook: “The primary consequence of the minimum wage law is not an increase in the incomes of the least skilled workers but a restriction of their employment opportunities.”

Most economists agree. In a survey of members, the journal of the American Economic Association found that 90 percent believed the minimum wage raises unemployment among low-skilled workers. And, in 1983, the General Accounting Office reported “virtually total agreement that employment is lower than it would have been if no minimum wage existed.”

No kidding! Any freshman economics student knows that if you raise the price of something (in this case labor), then demand for it (in this case by employers) will fall.

When the government forces a business to pay $5.15 an hour to employ someone whose labor is worth less than that, then the business will have to make adjustments. It will substitute machines for people, or hire more-skilled workers (which is one reason unions push for the minimum wage) or move production offshore.

Why can’t the business just raise prices - jack that Big Mac up to $3.50 and pass the added cost on to the consumer? The answer is that prices aren’t simply a function of costs, but of supply and demand. If McDonald’s could charge more for a Big Mac, it would be doing so already.

The problem is that, at a higher price, a Big Mac won’t attract as many buyers. They’ll eat out four times a month instead of five, take tuna sandwiches to work or buy plain hamburgers.

But reserve most of your sympathy for struggling workers rather than small businesses. “If a government rules that no employer may pay less than some arbitrary minimum,” wrote Michael Prowse in the Financial Times, “it is condemning to permanent unemployment anybody whose productivity is too low to justify such a wage.”

Let’s go back to 1923, when the District of Columbia adopted one of the nation’s first minimum wage laws. Forced to raise the pay of employees, Children’s Hospital quickly fired several female workers. The women sued to stop enforcement of the law - and won.

The Supreme Court, writes Linda Gorman in “The Fortune Encyclopedia of Economics,” ruled that the minimum wage law was “an unreasonable infringement on individuals’ freedom to determine the price at which they would sell their services.” It was the workers who were the victims, not the bosses.

Of course, those were the good old days - when judges asserted that employer and employee had the right to enter into their own private contracts (I’ll pay you this if you do that) without government interference. Today, we have to rely on legislators to defend such liberties. And they’re largely silent on the subject.

But, high-minded talk aside, who can live on $4.25 an hour? Hardly anyone. But, then, hardly anyone does. The typical minimum-wage earner is a teenager living with his parents. As Robert Reich, the secretary of labor, wrote in a memo to President Clinton in 1993: “After all, most minimum wage workers are not poor.”

In 1995, according to the U.S. Bureau of Labor Statistics, 1,956,000 workers earned the minimum wage. Of those, 59 percent were 24 years old or younger.

If you expand the group to include everyone who makes between $4.25 and $5.15 (the proposed new minimum wage), then 12 million Americans are affected. But, according to an analysis of Census data by the Employment Policies Institute (an industry group), just 9 percent of these workers are married and their family’s only wage earner, and only 3 percent are single parents.

They don’t earn the minimum wage for very long, either. “A year after having been observed working at the minimum wage of $4.25, the average wage for these workers stands at $6.08 an hour,” reports the institute, in a study verified by David Macpherson, professor of economics at Florida State University. That makes sense, since the minimum wage tends to be a way station; 60 percent of us earned it at one time in our working lives.

But shouldn’t government do something about people who are poor but hard-working? Yes, it should make sure they have opportunities to succeed through their own talents and diligence. It might even supplement their incomes through a kind of negative income tax, such as the Earned Income Tax Credit (EITC).

In fact, what makes the current push so maddening is that the administration originally chose to back the EITC as an efficient alternative to the minimum wage.

Bill Clinton understands the arguments made by soulmates like economist Robert Shapiro of the Progressive Policy Institute, who has concluded that “an increased minimum wage often takes from the poor to help the middle class.”

He and his fellow Democrats are simply playing cynical politics - trying to make Republicans appear heartless. Of course, Republicans play this game, too, with issues like crime and affirmative action. But it’s a shame that, if Democrats succeed in cowing Bob Dole and Newt Gingrich on the minimum wage, the losers will be small business owners and the poor - not to mention every American who values personal and economic liberty.

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