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Manhattan Institute

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The Cynical Minimum-Wage Game

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The Cynical Minimum-Wage Game

The Wall Street Journal April 6, 2016
EconomicsEmploymentIncome Inequality

Killing job prospects for the less-skilled doesn’t reduce poverty and may well exacerbate it.

Democrats are routinely accused of taking black support for granted. They push policies without much concern for the potential negative impact on their black constituents, whom liberals reason will either vote Democratic or stay home.

Younger and less-experienced workers, who are disproportionately black, are especially vulnerable to mandatory wage increases...

To understand the basis of this criticism, look no further than the current debate over minimum-wage increases. For decades, the political left has argued that higher minimum wages would reduce poverty and income inequality. In reality, wage floors are nothing more than sops to organized labor. Most of the U.S. labor force isn’t organized, so labor unions use minimum-wage laws to limit the job competition from nonunionized workers. And Democrats support Big Labor’s agenda to keep the party’s campaign coffers filled.

This week California and New York, two states run by Democratic governors, announced plans to gradually increase the base wage to $15 per hour. California Gov. Jerry Brown acknowledged that there was no economic rationale for the increase, and the state finance department issued a report last year that said increasing the minimum wage would lead “to slower employment growth.” In the end, however, the progressive Democrat decided, much as New York Gov. Andrew Cuomo must have, that other factors were more important. “Economically, minimum wages may not make sense,” Mr. Brown said recently. “But morally and socially and politically they make every sense.” The governor appears to have struggled with his conscience—and won.

According to the Bureau of Labor Statistics, the U.S. jobless rate in the fourth quarter of last year was 5%, but it was 9.1% for blacks and 10.9% for black residents of California—or more than double the 4.4% for whites in the Golden State. Black job seekers in New York fared better with a 7.7% unemployment rate at the end of last year, but it was still twice as high as the 3.8% rate for white New Yorkers and well above the state’s 4.8% average. A minimum-wage increase does nothing for people out of work other than make it more difficult for them to find a job.

Some workers may be better off under a higher minimum, but not everyone. Younger and less-experienced workers, who are disproportionately black, are especially vulnerable to mandatory wage increases, since their employers are more willing and able to reduce hours, cut benefits or mechanize a task in an effort to save money. The government can mandate that an unskilled worker be paid more money, but that won’t make the worker more productive or ensure that he keeps his job.

These so-called disemployment effects are played down by liberals, but they get to the crux of the problem with the policy. Most minimum-wage workers are neither poor nor the sole breadwinner of the family. Statistically, they are much more likely to be seniors staying busy in retirement, teenagers gaining work experience, or someone with young children working part-time until school lets out. What characterizes most poor households in the U.S. is a lack of workers—any workers—not people already in the labor force who earn too little. Any policy that reduces job prospects for the less-skilled is not reducing poverty and may well be exacerbating it.

Mr. Brown says higher minimum wages are about “economic justice” for the disadvantaged, and politicians going back many decades have similarly claimed to be looking out for the little guy. “The minimum wage laws were passed to help especially the unskilled, the teenagers, and the blacks,” wrote economic journalist Henry Hazlittin 1979, four decades after the 1938 Fair Labor Standards Act established the first federal minimum wage. “Is this helping the poor? Is it helping the unskilled worker? The results show that it is doing exactly the opposite.” Unfortunately, it still is.

An academic paper on the 2007 federal minimum-wage hike by William Even of Miami University in Ohio and David Macpherson of Trinity University in Texas detailed the effects on young blacks, who were by far hit hardest. The “employment losses for 16-to-24-year-old black males between 2007 and 2010 could have been nearly 50% lower had the federal and state minimum wages remained at the January 2007 level,” wrote the economists, adding that the “consequence of the minimum wage for this subgroup were more harmful than the consequences of the recession.”

None of this history would stop President Obama from praising the actions of New York and California this week and calling for Congress to legislate an even higher federal wage floor. Hillary Clinton, for her part, joined Mr. Cuomo at a rally in Manhattan on Monday to celebrate the new law. The sad irony is that black voters have been Mrs. Clinton’s firewall against an unexpectedly resilientBernie Sanders. Blacks are looking out for Hillary, while she’s looking out for Big Labor. Mrs. Clinton and her fellow Democrats aren’t just taking black supporters for granted. They’re also taking them for a ride.

This piece originally appeared in The Wall Street Journal

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Jason L. Riley is a senior fellow at the Manhattan Institute, a columnist at The Wall Street Journal, and a Fox News commentator.

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