One of the most beloved fairy tales in this country is that the Government, which seems unable to balance its own books, can by fiat, with no consequences to employment, tell employers that they must pay a minimum wage. Economist Thomas Sowell, who, like me, began his career earning less than the then mandated minimum wage, explains what an appallingly bad idea this is:
One of the simplest and most fundamental economic principles is that people tend to buy more when the price is lower and less when the price is higher. Yet advocates of minimum wage laws seem to think that the government can raise the price of labor without reducing the amount of labor that will be hired.
When you turn from economic principles to hard facts, the case against minimum wage laws is even stronger. Countries with minimum wage laws almost invariably have higher rates of unemployment than countries without minimum wage laws.
Switzerland is one of the few modern nations without a minimum wage law. In 2003, “The Economist” magazine reported: “Switzerland’s unemployment neared a five-year high of 3.9 percent in February.” In February of this year, Switzerland’s unemployment rate was 3.1 percent. A recent issue of “The Economist” showed Switzerland’s unemployment rate as 2.1 percent.
Most Americans today have never seen unemployment rates that low. However, there was a time when there was no federal minimum wage law in the United States. The last time was during the Coolidge administration, when the annual unemployment rate got as low as 1.8 percent. When Hong Kong was a British colony, it had no minimum wage law. In 1991 its unemployment rate was under 2 percent.
It therefore came as little surprise to me yesterday when the CBO estimated that raising the minimum wage would kill off half a million jobs in 2016:
President Obama’s proposal to raise the minimum wage to $10.10 per hour would cost 500,000 jobs in 2016, according to a report released Tuesday by the nonpartisan Congressional Budget Office.
The report also found hiking the wage from $7.25 per hour would raise income for about 16.5 million workers by $31 billion, potentially pulling nearly 1 million people out of poverty.
The White House and economic groups on the left immediately pushed back at the CBO’s conclusions on jobs even as they hailed the findings on poverty, saying its conclusions on jobs ran counter to other research.
“CBO’s estimates of the impact of raising the minimum wage on employment does not reflect the current consensus view of economists,” Council of Economic Advisers Chairman Jason Furman wrote in a blog post. “The bulk of academic studies, have concluded that the effects on employment of minimum wage increases in the range now under consideration are likely to be small to nonexistent.”
Given its findings on poverty alleviation, Furman told reporters the CBO report was an overall positive for the White House.
“Sometimes you have to have a respectful disagreement among economists,” Furman said in a conference call. “I think a lot of economists who have looked at [the] literature would summarize it differently than CBO has done here.”
Democrats are hoping to make the minimum wage a top issue in the 2014 midterms if the GOP blocks passage of a bill, but the CBO report would bolster Republican arguments for stopping a wage hike.
Go here to The Hill to read the rest. I began working around eleven doing agricultural labor that was not covered by minimum wage laws. I then went on to wash pots and pans at the country club in my hometown, doing dishes and scrubbing floors for a $1.55 per hour, a great job I held all during the last three years of high school. I had many other low wage jobs between high school and graduating from law school. These early jobs taught me the importance of showing up, following instructions, working hard, getting along with people and a whole host of other job skills that have served me well all the days of my life. I was not unusual: most teenagers I knew had jobs back in the seventies, sometimes more than one. The teen unemployment rate is now 20.7 percent, with the black teen unemployment rate being an astounding 38%, and the solons of the Obama administration, if this policy is passed, will drive it higher. Ignorance in most areas of life can be a disaster. When it comes to economics you can take out “can” and insert “shall”.