With Friends Like These …

Fewer than one in six African-American teenagers are employed.  Only 28 percent of African-Americans who have not completed high school are employed.  Faced with these historically low employment rates for young and minority workers, it would be cruel to require employers to pay 38% more per hour for unskilled labor.  Such a mandate would certainly drive teen and minority employment down even further.  Yet this is exactly the policy that Representative Jesse Jackson Jr. (D-IL) is advocating.

The demand curve for unskilled labor slopes down.  Mandating that workers are more expensive to hire does not make them more valuable or productive to employers.  In other words companies faced with a 38% increase in the cost per hour of unskilled labor will reduce their use of unskilled labor.  An increase in the minimum wage would harm the most vulnerable participants in the labor force.  The fact that the majority of Americans support an increase in the minimum wage reflects their economic illiteracy.  The fact that most liberal political commentators and journalists support a minimum wage increase is disturbing.   

An example of progressive pundits’ flawed reasoning is last Saturday’s edition of Up With Chris, when Amy Goodman, host of Democracy Now!, and host Chris Hayes had the following exchange:

GOODMAN: it would have been a wonderful truth for President Obama to offer yesterday … when he was speaking about the economy, let`s increase the minimum wage.  Very little coverage has been done of Jesse Jackson Jr.`s introduction of the bill for the minimum wage, that would mean it would go up to something like $10, which would bring it back to 1968…. He would have massive support.  I think something like, polls show, 70 percent of people would support it.

HAYES: I agree with you. I think we should raise the minimum wage. That would be a good net positive good for people.

President Obama is very unlikely to endorse a 38% increase in the minimum wage because he knows it will kill jobs and further weaken an already fragile economic recovery.  If prosperity was that easy to achieve through legislation Congress should mandate a minimum wage much higher than $10 per hour.

It is ironic that Alan Krueger, the head of the Council of Economic Advisors, is one of the academic economists who contributed most to the misinformation about the minimum wage.  His controversial and flawed academic research with David Card on the minimum wage has been misinterpreted.  A higher minimum wage doesn’t harm all workers or all firms. Workers who compete with unskilled labor may benefit by a large increase in the minimum wage.  Unskilled labor intensive firms are harmed but their more capital-intensive competitors may benefit from a higher minimum wage.  But Chris Hayes is 180 degrees from the truth; a minimum wage increase is a net negative bad for the economy.   More importantly the primary losers are the unskilled workers directly impacted by a minimum wage increase as their employment opportunities disappear.

A higher price mandate is not the kind of “help” that firms want from government.  Companies would lobby against legislation that would raise the price of their products and services by 38%.  The same logic applies to workers; a 38% increase in the cost of hiring unskilled workers will make it much harder for young and minority workers to find employment in an already weak job market.

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