Minimizing Choices

When dealing with complex issues, paradoxes become commonplace. In 1931, the federal government of the United States decided that minority construction companies were taking jobs away from white construction companies. The reason was that the minorities were willing to perform the work for less pay. The government's solution was to create legislation called the Davis-Bacon Act. It's purpose was to require the government to allow construction bids to contractors who pay "union wages". This allowed the white-run companies to reclaim many of the jobs they were losing. It didn't end there. The Davis-Bacon Act was successful at pricing minorities out of jobs, but it applied only to government contracts. Companies not under government contracts wanted in on this idea as well. They got there way and the minimum wage laws were enacted.

So, here's our paradox. We are always hearing arguments favoring hiking up minimum wage, whether it's on a national or state basis. The arguments always take the stand that raising minimum wage will aid low-end workers and minorities. Politicians, who want to be seen as the type who "looks out for the little guy" use minimum wage to perpetuate that persona. Yet, minimum wage was never there to help these low-end workers. Not only that, study after study has shown the following. This is from the Joint Economic Committee:

The minimum wage reduces employment.
Currie and Fallick (1993), Gallasch (1975), Gardner (1981), Peterson (1957), Peterson and Stewart (1969).

The minimum wage reduces employment more among teenagers than adults.
Adie (1973); Brown, Gilroy and Kohen (1981a, 1981b); Fleisher (1981); Hammermesh (1982); Meyer and Wise (1981, 1983a); Minimum Wage Study Commission (1981); Neumark and Wascher (1992); Ragan (1977); Vandenbrink (1987); Welch (1974, 1978); Welch and Cunningham (1978).

The minimum wage reduces employment most among black teenage males.
Al-Salam, Quester, and Welch (1981), Iden (1980), Mincer (1976), Moore (1971), Ragan (1977), Williams (1977a, 1977b).

The minimum wage helped South African whites at the expense of blacks.
Bauer (1959).

The minimum wage hurts blacks generally.
Behrman, Sickles and Taubman (1983); Linneman (1982).

The minimum wage hurts the unskilled.
Krumm (1981).

The minimum wage hurts low wage workers.
Brozen (1962), Cox and Oaxaca (1986), Gordon (1981).

The minimum wage hurts low wage workers particularly during cyclical downturns.
Kosters and Welch (1972), Welch (1974).

The minimum wage increases job turnover.
Hall (1982).

The minimum wage reduces average earnings of young workers.
Meyer and Wise (1983b).

The minimum wage drives workers into uncovered jobs, thus lowering wages in those sectors.
Brozen (1962), Tauchen (1981), Welch (1974).

The minimum wage reduces employment in low-wage industries, such as retailing.
Cotterman (1981), Douty (1960), Fleisher (1981), Hammermesh (1981), Peterson (1981).

The minimum wage hurts small businesses generally.
Kaun (1965).

The minimum wage causes employers to cut back on training.
Hashimoto (1981, 1982), Leighton and Mincer (1981), Ragan (1981).

The minimum wage has long-term effects on skills and lifetime earnings.
Brozen (1969), Feldstein (1973).

The minimum wage leads employers to cut back on fringe benefits.
McKenzie (1980), Wessels (1980).

The minimum wage encourages employers to install labor-saving devices.
Trapani and Moroney (1981).

The minimum wage hurts low-wage regions, such as the South and rural areas.
Colberg (1960, 1981), Krumm (1981).

The minimum wage increases the number of people on welfare.
Brandon (1995), Leffler (1978).

The minimum wage hurts the poor generally.
Stigler (1946).

The minimum wage does little to reduce poverty.
Bonilla (1992), Brown (1988), Johnson and Browning (1983), Kohen and Gilroy (1981), Parsons (1980), Smith and Vavrichek (1987).

The minimum wage helps upper income families.
Bell (1981), Datcher and Loury (1981), Johnson and Browning (1981), Kohen and Gilroy (1981).

The minimum wage helps unions.
Linneman (1982), Cox and Oaxaca (1982).

The minimum wage lowers the capital stock.
McCulloch (1981).

The minimum wage increases inflationary pressure.
Adams (1987), Brozen (1966), Gramlich (1976), Grossman (1983).

The minimum wage increases teenage crime rates.
Hashimoto (1987), Phillips (1981).

The minimum wage encourages employers to hire illegal aliens.
Beranek (1982).

Few workers are permanently stuck at the minimum wage.
Brozen (1969), Smith and Vavrichek (1992).

The minimum wage has had a massive impact on unemployment in Puerto Rico.
Freeman and Freeman (1991), Rottenberg (1981b).

The minimum wage has reduced employment in foreign countries.
Canada: Forrest (1982); Chile: Corbo (1981); Costa Rica: Gregory (1981); France: Rosa (1981).

Even the New York Times published an article in 1987 called “The Right Minimum Wage: $0.00” Whenever minimum wage rises, employers are forced to evaluate the situation and make some hard decisions about cutting hours, cutting benefits, or just cutting out the workers altogether. In many low-wage situations, there are automation alternatives (i.e. computers or robotics) that are available. There is a threshold to the employer as to when it's time to replace humans with machines and that threshold is often dependent on the minimum wage.

Most politicians are aware of many of these studies, yet they continue to jabber on about how necessary the minimum wage is. Why would they do this? They are pandering to an American public they feel is too dumb to figure this stuff out. Paradoxes can be difficult to explain so they don't want to bother because they can appease more people quickly by just raising the minimum wage. This is similar to the way politicians deride "taxes for the rich". These taxes have helped our economy immensely but left-wing politicians refuse to accept that. It's another paradox that's easy to believe in the wrong choice.

Think of it this way. If you are making minimum wage, then your employer is only paying you what he is forced by the government to pay you. Therefore, you are overpaid.