Minimum wage hike: When politics trumps economics

In January of 2013, the month before President Obama called for a 25% increase in the federal minimum wage, the unemployment rate among African American teens was 37.8%. A strong majority of Americans, 71% according to a USA Today/Pew Research Center poll, support the measure, a tribute to the nation’s willingness to make the tradeoff of fewer jobs for higher pay. If enacted, it would result in less entry-level job creation than otherwise would occur.

Actually, it’s not entry-level workers who would benefit most from the president’s plan, which would raise the minimum wage from $7.25 to $9 an hour. Just in case you wonder why collective bargaining units would care about the minimum wage when the average private-sector union member earns $22 per hour, it’s worth noting that some unions tie their baseline wages to the minimum wage.

They negotiate formulas for baseline union wages to be a certain percentage above the state or federal minimum wage, or that mandate a flat-wage premium above the minimum wage. Their contracts might even dictate that wage negotiations be reopened whenever the minimum wage goes up.

If they can get it, more power to them. I don’t object to unions pursuing these provisions at the bargaining table, I object to politicians who raise the minimum wage and argue they are doing it to help entry-level workers. With slack already in the labor market at the low-skill end, raising the cost of such labor isn’t likely to result in more employment opportunities for people scuffling to get their feet in the door.

 

Fundamental economics dictates that the higher the price of something, the less of it people consume. This law of demand is hardly a difficult concept to grasp, except for pandering pols with fundraising constituencies to please. That would be a reference to organized labor and the best Congress it can buy.

Entry-level jobs in a booming industry, say oil and gas exploration in the energy-rich Dakotas, probably already exceed the minimum wage. Perhaps they even approach $9 per hour. However, the story is different in most places, especially for minority teens waiting for their chance to start climbing the ladder. It’s challenging enough for young people to make themselves marketable to employers, but it doesn’t help when the government raises the bar and lowers their employment opportunities.