Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
How the Minimum Wage Contributed to the Ferguson Riots
The legal federal minimum wage prevents employers from hiring anyone, with few exceptions, who would work for less. Michael Brown, the young black teenager killed in Ferguson, was one of the millions of black teenagers and other unskilled blacks who are unemployed as a result of the minimum wage of $7.25 per hour which costs prospective employers $16,150 per year including social security tax and Medicare insurance plus some thousands more for Obamacare. As a result, most black teenagers are unable to get the first foot on the ladder to a living wage and the ability to raise a family. And many older unskilled workers, including single mothers, who are without a job find themselves alienated and part of a vast underclass with attendant unsocial and criminal behavior.
That the minimum wage reduces the demand for unskilled workers cannot be denied. The vast majority of economists acknowledge that the legal minimum wage prevents the employment of many unskilled workers but they are afraid to publicly denounce the minimum wage which enjoys so much support from powerful political groups, like the labor unions. Unions do not want competition from non-union employers.
We even hear calls for a “living wage” as though every worker is the sole support of a family. The average household consists of 2.54 persons down from 3.33 in 1960. That statistic includes seniors and families whose children are grown-up. Twenty-eight percent of women age 35 to 44 have three kids or more. During the 1950s, women had four children on the average. That date is significant because the minimum wage began to have its effect about then. Still, the typical family with a teenager in it has one or two parents. If either parent works, a teenager earning $5 and hour adds $10,000 to the family income. His employment could be the difference between the family’s living in poverty or not.
Federal law allows employers to pay $4.25 an hour -- $3 less than the current federal minimum -- to anyone under 20 for the first 90 days of employment. Federal law also lets employers pay 85% of the federal minimum (or $6.16/hour) to full-time students working in retail or service businesses, in an agricultural occupation, or at an institute of higher education. They are also allowed to pay just 75% of the minimum wage (or $5.44/hour) to students who are employed part-time as part of a vocational training program at an accredited school. There are special rules for employees who rely on tips, physically disadvantaged, and teenagers engaged in summer jobs, etc. But this leaves millions of teenagers and older unskilled workers unable to find employment, alienating many and forcing many into some sort of criminal behavior. And preventing many from taking on the responsibility of marriage and any children they might conceive..
The minimum wage is an example of government interference with the proper working of a free economy. The laws of supply and demand cannot be repealed by a government law or regulation. Nevertheless, at all levels of government today — federal, state, city — politicians, ignorant of the economic effects of the tax, support raising the minimum wage. Even Republicans including presidential candidate Mitt Romney say it should be raised.
During the 1st Quarter of 2014, black teenagers had a scandalous 42 percent unemployment rate, white teenagers, a 21.4 percent rate, and the unemployment rate for males 25 and over, 6.1 percent. The cause of this disparate treatment of black teenagers is the minimum wage law. The minimum wage law is responsible he high rate for white teenagers as well and indeed, for all unskilled workers regardless of age and sex.
The social effects of the minimum wage law have been disastrous for the country. It is the principal contributor to the growth of single parent families, which is responsible for the increase in crime rates especially among blacks and poor whites and Hispanics. By 1996 the number of children under 18 living in single-parent families were 22 percent for white, 57 percent for black, and 33 percent for Hispanic families. Between 1960 and 1996, the proportion of all children under age 18 who were living with a single parent increased steadily from 15 to 32 percent. A CATO report states that black children from single- parent households are twice as likely to commit crimes as black children from a family where the father is present. Nearly 70 percent of juveniles in state reform institutions come from fatherless homes, as do 43 percent of prison inmates.
It is noteworthy that between 1940 and 1960 the unemployment rate for blacks was the same as that for whites. In the only long-term study of the racial unemployment gap I could find, the authors, Profs. Fairlie and Sundstrom, wrote that the emergence of the racial unemployment gap after 1960 “remains an unsolved puzzle” but they did note the possibility that the minimum wage could have been a cause.
The minimum wage has had the effect of driving the shoe, clothing, and textile industries overseas, major employers of relatively unskilled workers. American firms could compete with foreign firms having lower wages so long as the difference in wage rates was not too great. Successive increases in the federal minimum wage made the exodus of all labor-intensive industries employing low- and semi-skilled workers from the United States inevitable. The exodus of jobs to China and other foreign countries continued unabated to the great injury of unskilled workers. The unemployment rate of black teen-pagers reached 46 percent in 2012. What a disgrace!
The unemployment rate during full employment years has as a result also increased. It was at a low 2.53 percent in 1953 but in the full employment year of 1999 the lowest rate was 4 percent.
Government has no business setting wage rates. Our preferred solution is to repeal the minimum wage laws. But it is argued that that is not politically possible. An alternative is a policy mentioned above, the minimum wage should not apply to persons during the first 120 days of employment.
Michael Brown, the young hoodlum killed in Ferguson, had little chance to earn money by working, thanks to the legal minimum wage and no chance of achieving the American dream. And the mobs who looted and rioted? Most are part of the vast underclass to which the minimum wage is the principal contributor.
Comment by will, 1/31/2015:
Last 100 Years
Real Estate Taxation
Journal of Economic Literature:
Atlantic Economic Journal: