John Locke Update / Research Newsletter

Work at today’s minimum wage is better than ‘moral’ unemployment

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Labor unions and "moral" activists have once again somehow gotten a few of the poorest and least educated workers in the Triangle to walk off their jobs and demand publicly that they all be priced out of work and their jobs be taken by machines.

True, that isn’t what any of them think would happen. Practically, however, if they got what they wanted, that’s what would happen.

Working for the lowest allowable wage is nobody’s ideal. It’s better than not working at all, however — a lot better than misguided activists seem to appreciate.

The negative effects of raising the minimum wage is one topic about which there is widespread agreement among economists. Harvard University economist Greg Mankiw found that four out of five economists agreed that "A minimum wage increases unemployment among young and unskilled workers." Few subjects attract that much agreement among economists.

An increase from $7.25 per hour to $15.00 per hour, which is what the protesters are demanding, would be an increase of about 107 percent. That’s more than double the current minimum wage.

Such a move would have serious consequences. The last minimum wage increase took place from 2007 to 2009. The increase then was by nearly 41 percent.

By 2012 MSNBC was sounding the alarm: "A teen with a job becomes a rarity in the U.S. economy."

Only about 25 percent of 16- to 19-year-olds currently are working, a drop of 10 percentage points from just five years ago, according to the Bureau of Labor Statistics.

The percentage of teenagers who have jobs, expressed as the ratio of employment to population, hovered between 40 and 50 percent for much of the 1980s and 1990s. The percentage began dropping about a decade ago, but the declines have been especially steep since the beginning of the Great Recession in late 2007.

MSNBC looked further into the data and saw that there were "fewer positions to be had" by teenagers, especially as "jobs that are available are increasingly going to adults who are desperate enough to take a job that might once have gone to a teenager."

At the suddenly higher entry-level wages, who is the employer going to hire when given the choice between an inexperienced teenager and an adult? More of those individual employment decisions are going to come down on the side of experience.

MSNBC then looked at who suffered the most — "those who may need the money most: Teens from poor families and families in which a parent is out of work." The article discussed this regrettable effect and how it deprives them of the beneficial "ripple effect" of finding a job.

As Andrew Sum, director of the Center for Labor Market Studies at Northeastern University, explained: "The likelihood of working increases significantly once a teen has already held a job."

So when employers did hire teenagers, they were more likely to hire teenagers from wealthier families with parents who work. In the new entry-level wage environment, more individual employment decisions for teenagers were then coming down on the side of family history and connections:

Other research backs up that disparity. Algernon Austin, director of the race, ethnicity and the economy program at the Economic Policy Institute, last year analyzed 2009 data on teens who were not attending school.

He found that 16- to 19- year-olds from poor families, whose income was below the poverty line, were less likely to be working than teens whose families had more money. That was true regardless of race or ethnicity.

"In terms of need, it is backwards," he said.

The analysis of teens living below the poverty level, just above the poverty level and in middle-class households also found that at every income level, white and Hispanic teens were more likely to be working than black teens.

Austin said low-income and minority teens may not have family connections and role models that can help them land a job. They also may face other obstacles, some as simple as not having access to a car or public transportation to get to work.

"It’s all sort of interconnected — (a) web of disadvantage that makes it difficult to find work," he said.

Raising the price of entry-level wages makes that web of disadvantage even harder to get out of for the poorest and least skilled.

It’s important to see that an increase in the minimum wage would benefit workers whose employers decide they would still be valuable to them at the higher wage. That boost to some of the lowest wage earners comes ultimately at the expense of the other, former lowest wage earners and would-be lowest wage earners.

What’s worse, the ones who get left out are the ones who are the least employable, the least skilled, and perhaps the most in need of not just getting, but also learning how to hold, a job. "In terms of need, it is backwards," as the researcher Austin quoted above said.

This harsh reality is what makes it all the more distressing that supposed advocates for the poor promote minimum wage increases. You would expect them to understand the plain economic realities.

You would expect them, if they had to choose — if they were forced to make that harsh tradeoff between one group of working poor and the other — to come down in favor of helping the poorest and least skilled. You would expect that if they are, as they say they are, advocates for the poor.

You would also expect them to know, as job training charities do, that learning how to hold a job and respect the dignity of work have intrinsic value themselves. Those things are especially important to learn for people who are the hardest to employ. Don’t forget the interconnection and the ripple effect of having held a job — it significantly boosts the likelihood of working.

These charities would be, of course, the ones with "boots on the ground" working at the individual level to help the poorest and least skilled among us not only to find jobs, but to develop the skills that keep them employable.

You would also expect advocates for the poor to support, not oppose, free enterprise. Why? Because free enterprise is the most potent fighter of poverty throughout human history. If they are as they say they are.

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Jon Sanders studies regulatory policy, a veritable kudzu of invasive government and unintended consequences. As Director of Regulatory Studies at the John Locke Foundation, Jon gets into the weeds in all kinds of policy areas, including electricity, occupational licensing, hydraulic… ...

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