The WSJ Explains The Harm Of The Minimum Wage In Simple Terms

So simple even Nancy Pelosi could understand:

Classical economics teaches that for a given job, there is a market-clearing price — the price at which both someone is willing to do it and someone else is willing to pay them to do it. If you raise the legal minimum above that price, you may get more people willing to perform the job, but you’ll probably also get less people (employers) willing to pay the new, higher price to get the job done.

To picture how this works, think about the grocery bagger in the supermarket, a classic low-wage service job. Supermarkets hire grocery baggers for the minimum wage, or close to it, because it’s a perk that makes their customers’ experience a bit nicer and helps move the lines along, possibly requiring fewer cashiers, who cost more to hire than grocery baggers.

Now, if you pass a law saying everyone, including grocery baggers, has to be paid $10 an hour, what happens? The supermarket probably hires fewer baggers, or has them work fewer hours. Perhaps they decide they only need baggers between 4 p.m. and 7 p.m. If you put the minimum wage up to $20 an hour, shoppers bag their own groceries. This is so clear that it’s taken some time for the defenders of an ever-rising minimum wage to come up with an adequate theory to obscure it.

Most jobs do not involve bagging groceries. But most jobs don’t pay the minimum wage. The Bureau of Labor Statistics puts the number of minimum-wage earners at 2% of the work force. The majority of these are under 25 years old and single….

It is implicit in the logic behind raising the minimum wage that if we squeeze employers just a little, they won’t even notice. Another argument, this one made explicitly, is that jobs are destroyed, but the wage gains more than make up for the reduced number of jobs. But this is only true if it’s not your job that is destroyed. If you are a young black male, you are slightly more likely than the general population to be paid minimum wage, but you are almost 10 times as likely not to have a job at all. And if you’re unemployed, raising the minimum wage not only doesn’t help you find a job; it probably hurts. Welcome to Speaker Pelosi’s idea of progress.

The full article can be found here.

10 Responses to “The WSJ Explains The Harm Of The Minimum Wage In Simple Terms”


  • Dr. Williams
    points out that raising the minimum wage doesn’t even accomplish its stated goal of defeating poverty.

    In fact the only beneficiaries of this scam are the politicians – and not the newly-unemployed who don’t understand why.

  • Virtually all of the local grocery workers are unionized and earn quite a bit more than minimum wage. Union grocery employees enjoy decent salaries, benefits, pensions, etc. They have provided a very realistic opportunity to work and have enough money and flexibility to go to school for many of the young people I know here. In fact, a local magazine rated one of the local organic grocery chains as one of the best companies to work for due to their solid relationship with employees. Perhaps unionization is a better solution than raising the minimum wage. There are tons of grocery stores here and no shortage of jobs in that area. :)

  • Yeah, the minimum wage does very little to certain areas and more so for other areas.

    But if you are low educated, poor, or in any way a minority that faces discrimination, the minimum wage is your worse enemy.

  • Although I can’t cite book & verse right now, the white trade unions of South Africa decades ago openly campaigned for the minimum wage to keep poorly-educated Blacks and “Coloureds” from usurping their jobs.

    Even though American unionized workers aren’t so blatantly racist about it today, the end result cannot help but be the same.

  • Any group of people is bound to be corrupted by some element. Racism found in unions (or any other organization) isn’t the fault of the union system, rather, the fault of people who shape it to accomodate racism.

    What unions are you familiar with that are racist? I’m personally familiar with the United States Postal Workers Union and judging from the percentages of people I have known there, they provide a great amount of jobs for African Americans.

  • …I’m personally familiar with the United States Postal Workers Union and judging from the percentages of people I have known there, they provide a great amount of jobs for African Americans.

    Oh really? The USPWU provides jobs? They write the paychecks?

    (Now THAT is an eye-opener…)

  • FYI, for those who may be interested:

    http://www.epi.org/minwage/epi_minimum_wage_2006.pdf

    Just something to read.

  • LaurenceB, you can’t criticize me for posting quotes by Dick Morris without including context if you are going to post links to the EPI without including context.

    Here is more info on the source, the economic policy institute:

    The Economic Policy Institute or EPI is a progressive United States think tank based in Washington, D.C. and concerned with, as its name implies, the formulation of economic policy….

    EPI is organized as an IRS Code Section 501(c)(3) non-profit organization and has a staff of about fifty, of whom about ten are Ph.D. researchers. Its board of directors consist largely of labor union officials.

    There are some key words there you have you pay close attention to, one is ‘progressive’, which basically means liberals, Democrats, etc…precisely the people that benefit from the economic ignorance on the minimum wage. Second, ‘labor union officials’ basically means unions, and if the minimum wage benefits anybody, it benefits unions.

    Think about it, unions charge above average wages and as such, the ability for others to charge cheaper wages is a direct competitive threat to their market share so they want a minimum wage law so that it takes away that bargaining power from others.

    This is how the The Concise Encyclopedia of Economics explains it:

    Australia provided one of the earliest practical demonstrations of the harmful effects of minimum wages when, in 1921, the federal court institutionalized a real minimum wage for unskilled men. The court set the wage by estimating what employees needed, while ignoring what employers could afford to pay. As a result unskilled workers were priced out of the market. These laborers could find work only in occupations not covered by the law or with employers willing to break it. Aggressive reporting of violations by vigilant unions made evasion difficult, and the historical record shows that unemployment remained a particular problem for unskilled laborers throughout the rest of the decade….

    This explains why unions, whose members seldom hold minimum wage jobs, encourage minimum wage legislation and, as in the Australian case, assiduously help enforce its provisions by reporting suspected violations. Unions have historically represented skilled, highly productive workers. As has been demonstrated in the construction industry, employers facing excessive wage demands from union members may find it less expensive to hire unskilled workers at low wages and to train them on the job. Unskilled workers often benefit: accepting lower wages in return for training increases their expected future income. With high minimum wages like those specified for government construction by the Davis-Bacon Act, the wages plus the training cost may exceed the total compensation that employers can afford. In that case the employer would prefer the union member to his unskilled competitor, and passage of a minimum wage law reduces the competition faced by union members.

    For a counter balance to that study read this: http://www.cato.org/pubs/regulation/reg18n1c.html

    Or even better, check out the Employment Policies Institute’s (not to be confused with the economic policy institute above) latest studies here: http://www.epionline.org/news.cfm

  • Wow, a counter-balance to a counter-balance! ;)

    Let’s see…

    Yes, you are right, some context was needed. I was in a hurry. I just thought people might find it interesting since it represents the opposing view in a nutshell.

    And…

    I haven’t really picked a side in this debate. I’m weighing what I read and what I hear (and I hear quite a bit of interesting things from you, HP – thank you). So, don’t assume I support the link I posted. It’s just interesting reading. As I said it was.

  • I plan to post more on the minimum wage, something of my own thoughts and from a minority perspective as I think that is the forgotten perspective in this discussion.

    So hold out just a bit longer…

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