The U.S. The Senate has finalized President Biden’s COVID-19 relief bill, aiming to place 1.9 trillion dollars in the pockets of Americans who remain in dire straits. Progressives are fuming over the removal of the $15 minimum wage hike that, if included, would have raised the income of approximately 24 million citizens by 2025. How could the Republicans and moderate Democrats be so heartless, depriving the public of an opportunity that would better their situation in an economy that has already taken so much from them?
One of the first minimum wage laws that came to fruition in the U.S was the Davis-Bacon Act of 1931, a bill that ensured contractors paid their workers “prevailing” wage rates. Legislators at the time defended their support of the bill by either championing the benefits received by construction workers or conceding that they merely wanted to appease labor unions.
However, economist Walter Williams asserts that these legislators’ motivations did not arise from benevolence, but prejudice. He cites congressman Miles Clayton Allgood of Alabama, a sponsor of the bill, as saying, “Reference has been made to a contractor from Alabama who went to New York with bootleg labor. That is a fact. That contractor has cheap colored labor that he transports, and he puts them in cabins, and it is labor of that sort that is in competition with white labor throughout the country.”
When looking at the bill through this lens it becomes clear that the act’s purpose was to protect white workers’ jobs from low-wage Black competition by pricing them out of the market. Minority workers at the time could not undergo the same formal training as their white counterparts. The only way for them to get a leg up was to charge lower rates and steadily gain experience that would make them competitive. By raising the standard rate above their asking price, Black laborers were essentially denied all opportunities to establish themselves in a white economy.
Right now you must be thinking to yourself, “That sounds awful, but there is no possible way that the certain racist policies of the past have systemic ramifications in the present.” That is where prominent Black economist Thomas Sowell would disagree with you. When Sowell left home in 1948, the unemployment rate for Black teenagers was 9.4%, statistically lower than that of white teenagers, which was 10.2%. At that time there was a minimum wage, but inflation made it virtually equivalent to not having one at all. However, Sowell claims this presented him with a unique opportunity. Having dropped out of high school with no previous job experience, the low bar of entry made it possible for him to get his foot in the door and pave the way toward an education.
Compare his story to the economy we have today. As of 2019, the unemployment rate among Black 16- to 19-year-olds is 18.1%, nearly double that of white teens of the same age with an unemployment rate of 10.7%.
Those who support an increase in the minimum wage will often cite influential studies such as Myth and Measurement, conducted by David Card and Alan Krueger. These studies show that when individual states raise their minimum wage they do not immediately experience statistically significant job loss compared to neighboring states who did not.
Studies like these are effective at shutting down conservative politicians who do not grasp the full nature of the market. They look at human labor as if it were a material resource, deluding themselves into thinking that if an employee’s salary increases, the employer will simply shed the newfound financial burden. The majority of businesses don’t keep a surplus of employees because it is in their best interest to streamline production, only keeping essential workers. When wages rise, it is not an option for small business owners to start firing left and right; to do so would mean that they could no longer operate.
Card and Krueger’s study evaluated how an 18% raise in the minimum wage affected employment rates in the nine months after its implementation. No mass firings happened in such a short period because the market was still adjusting to the shift. In 2017, Seattle raised its minimum wage to $13 and the only immediate impact was a reduction of workers’ hours. However, reporter Megan McArdle of Bloomberg news found that for every 1% raise in their hourly wage, minimum wage workers experienced a 3% cut in the number of hours worked and subsequently lost around $125 in earnings each month, negating the gain from the earlier hike.
The important statistic to look at when evaluating the impacts of minimum wage hikes is not short-term unemployment but long-term job growth. Several notable studies, specifically those done by Jonathan Meer and Issac Sorkin, have looked at the long-term effects of these laws and discovered significant reductions in job growth in the years after their implementation. Sorkin’s study reports that in each year after passing the law the employment rate for minimum wage workers will decrease by around .30% until inflation eventually mediates the increase in price.
Essentially, after small businesses eat the costs of the increased wages, they cannot afford to expand or take the time to train employees who have no prior experience. They slowly shift toward automation, as can be seen with the introduction of self checkout machines at grocery stores and in the mechanization of your neighborhood car wash.
While minimum wage jobs are not glamorous, they are an important stepping stone toward future employment. A study conducted by the Economic Policies Institute found that minimum wage workers are five times more likely than all employees to be recent entrants to the workforce. Twenty-three years of recorded data show that nearly two-thirds of minimum wage employees who continue employment end up earning more than the minimum wage within a calendar year.
Certainly, an increase in the minimum wage will improve the lives of those who currently hold these jobs. A recent report by the Congressional Budget Office estimating the effects of a gradual increase to a $15 minimum wage by the year 2025 showed that “the cumulative pay of affected people would increase, on net, by $333 billion.” However, this same report projected that by 2025, “Employment would be reduced by 1.4 million workers, or 0.9 percent.” Millions more Americans would be denied the opportunity to enter an economy that has already been shaken by a global pandemic.
So while it seems morally right to plead for politicians to intervene, their doing so will hurt the poorest among us as it almost inevitably does. Minority workers in economically depressed areas are often hit the hardest by these laws because they have fewer opportunities to gain applicable work skills and of course old fashioned racism. This policy proposal would put all minimum wage workers at an extreme disadvantage, making their labor less attractive and ultimately unnecessary to employers.